Calculating Costs of Issuing Stock Wildcat, Inc

question 9

Multiple Choice

Calculating Costs of Issuing Stock Wildcat, Inc., needs to raise $750 million to finance its plan for nationwide expansion. In discussions with its investment bank, Wildcat's learns that the bankers recommend an offer price (or gross price) of $25 per share and they will charge an underwriter's spread of $1.50 per share. Calculate the net proceeds to Wildcat's from the sale of stock. How many shares of stock will Wildcat's need to sell in order to receive the $750 million they need?

• A) 30,000,000
• B) 31,914,894
• C) 500,000,000
• D) 750,000,000

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Definitions:

Fair Game

An investment prospect that has a zero risk premium.

Risk Premium

The extra return above the risk-free rate that investors require to compensate them for choosing to invest in a risky asset.

Portfolio Volatility

A measure of the dispersion of returns for a given security or market index, indicating how much the total value of the portfolio's assets fluctuates over time.

Individual Assets

Distinct items of property or investments owned by individuals, such as stocks, bonds, real estate, or personal property.