Calculating Costs of Issuing Stock Your Company Needs to Raise

question 102

Multiple Choice

Calculating Costs of Issuing Stock Your company needs to raise $4 million to finance plant expansion.In discussions with its investment bank,you learn that the bankers recommend a gross price of $50 per share and that 90,000 shares of stock be sold.If the net proceeds on the stock sale leaves your company with $4 million,what is the underwriter's spread on the stock issue?

• A)$2.78
• B)$5.55
• C)$44.44
• D)$38.89

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Definitions:

Manufacturing Activity

A set of processes involved in transforming raw materials into finished products.

Labor and Overhead

The combined costs of direct labor and indirect expenses incurred during production.

Assembly Department

is a section in manufacturing where components are assembled into final products.

First-In, First-Out Method

An inventory valuation method that assumes goods are sold in the order they are acquired, with the oldest inventory items sold first.