Calculating Costs of Issuing Stock Your Company Needs to Raise

question 48

Multiple Choice

Calculating Costs of Issuing Stock Your company needs to raise $50 million to finance plant expansion.In discussions with its investment bank,you learn that the bankers recommend a gross price of $75 per share and that 675,000 shares of stock be sold.If the net proceeds on the stock sale leave your company with $50 million,what is the underwriter's spread on the stock issue?

• A)$0.93
• B)$1.85
• C)$6.67
• D)$9.00

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Definitions:

Marginal Utility

The additional satisfaction or utility received by consuming an additional unit of a good or service.

Marginal Utility

The additional satisfaction or utility that a person receives from consuming one additional unit of a good or service.

Budget Line

A graphical representation of all possible combinations of two goods or services that can be purchased with a given budget.

Absolute Value

The non-negative value of a number without regard to its sign; essentially, it is the distance of a number from zero on the number line.