The Beranek Company, whose stock price is now $25, needs to raise$20 million in common stock. Underwriters have informed the firm’s management that they must price the new issue to the public at $22 per sharebecause of signaling effects. The underwriters’ compensation will be 5% ofthe issue price, so Beranek will net $20.90 per share. The firm will also incurexpenses in the amount of $150,000. How many shares must the firm sell tonet $20 million after underwriting and flotation expenses?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The Beranek Company, whose stock price is now $25, needs to raise
$20 million in common stock. Underwriters have informed the firm’s management that they must price the new issue to the public at $22 per share
because of signaling effects. The underwriters’ compensation will be 5% of
the issue price, so Beranek will net $20.90 per share. The firm will also incur
expenses in the amount of $150,000. How many shares must the firm sell to
net $20 million after underwriting and flotation expenses?

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