Calculating Costs of Issuing Stock WuShock,Inc

question 113

Multiple Choice

Calculating Costs of Issuing Stock WuShock,Inc.,needs to raise $500 million to finance its plan for nationwide expansion.In discussions with its investment bank,WuShock learns that the bankers recommend an offer price (or gross price) of $50 per share and they will charge an underwriter's spread of $2.00 per share.Calculate the net proceeds to WuShock from the sale of stock.How many shares of stock will WuShock need to sell in order to receive the $500 million they need?

• A)10,000,000
• B)10,416,667
• C)250,000,000
• D)500,000,000

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production.

Profit-maximizing Output

This is the level of production at which a firm achieves the highest possible profit, determined by the point where marginal cost equals marginal revenue.

Total Cost

The complete cost of production, including both fixed and variable costs, incurred by a business in producing its goods or services.

Marginal Cost

The increase in total cost that arises from producing an additional unit of output.