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53. Calculating Costs of Issuing Stock Mick E Inc. plans to issue 25 million new shares of
its stock. In discussions with its investment bank, Mick E learns that the bankers recommend a
net proceed of $29.80 per share and they will charge an underwriter's spread of 8.5 percent of
the gross proceeds. In addition, Mick E must pay $3 million in legal and other administrative
expenses for the seasoned stock offering. Calculate the gross proceeds per share received by
Mick E from the sale of the 25 million shares of stock.
54. Calculating Fees on a Loan Commitment During the last year you have had a loan
commitment from your bank to fund inventory purchases for your small business. The total line
available was $500,000, of which you took down $400,000. It is now the end of the loan
commitment period and your bank is asking you to pay the back-end fees. You have misplaced
the paperwork that listed the terms of the commitment, but you know you paid total fees (this
does not include any interest paid to borrow the $400,000) of $1,750 on this loan commitment.
You remember that the up-front fee was 25 basis points. What is the back-end fee on this loan
commitment?
55. Calculating Fees on a Loan Commitment During the last year you have had a loan
commitment from your bank to fund inventory purchases for your small business. The total line
available was $500,000, of which you took down $300,000. It is now the end of the loan
commitment period and your bank is asking you to pay the back-end fees. You have misplaced
the paperwork that listed the terms of the commitment, but you know you paid total fees (this
does not include any interest paid to borrow the $300,000) of $5,000 on this loan commitment.
You remember that the up-front fee was 75 basis points. What is the back-end fee on this loan
commitment?
56. Calculating Fees on a Loan Commitment During the last year you have had a loan
commitment from your bank to fund working capital for your business. The total line available
was $2,500,000, of which you took down $1,000,000. It is now the end of the loan commitment
period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork
that listed the terms of the commitment, but you know you paid total fees (this does not include
any interest paid to borrow the $1,000,000) of $15,000 on this loan commitment. You remember
that the back-end fee was 30 basis points. Calculate the front-end fee on this loan commitment.
57. Calculating Fees on a Loan Commitment During the last year you have had a loan
commitment from your bank to fund working capital for your business. The total line available
was $25,000,000, of which you took down $20,000,000. It is now the end of the loan commitment
period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork
that listed the terms of the commitment, but you know you paid total fees (this does not include
any interest paid to borrow the $20,000,000) of $110,000 on this loan commitment. You
remember that the back-end fee was 60 basis points. Calculate the front-end fee on this loan
commitment.
58. 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?
59. Calculating Costs of Issuing Stock Your company needs to raise $10 million to finance
plant expansion. In discussions with its investment bank, you learn that the bankers recommend
a gross price of $45 per share and that 240,000 shares of stock be sold. If the net proceeds on
the stock sale leave your company with $10 million, what is the underwriter's spread on the stock
issue?
60. 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?
61. Calculating Costs of Issuing Stock Sandal Etc., Inc., needs to raise $49 million to
finance firm expansion. In discussions with its investment bank, Sandals learns that the bankers
recommend an offer price of $25 per share and that 2 million shares of stock be sold. If the net
proceeds on the stock sale leaves Sandal with $49 million, calculate the underwriter's spread on
the stock issue.
62. Calculating Costs of Issuing Stock TriState Corp. recently went public with an initial
public offering in which they received a total of $50 million in new capital funding. The
underwriter used a firm commitment offering in which the offer price was $30 and the
underwriter's spread was $1.50. TriState also paid legal and other administrative costs of
$950,000 for the IPO. What is the number of shares issued through this IPO?
63. Calculating Costs of Issuing Stock Plains Corp. recently went public with an initial
public offering in which they received a total of $25 million in new capital funding. The
underwriter used a firm commitment offering in which the offer price was $25 and the
underwriter's spread was $1.00. Plains also paid legal and other administrative costs of $800,000
for the IPO. What is the number of shares issued through this IPO?
64. Calculating Costs of Issuing Stock River Valley Corp. recently went public with an initial
public offering in which they received a total of $40 million in new capital funding. The
underwriter used a firm commitment offering in which the offer price was $10 and the
underwriter's spread was $0.50. River Valley also paid legal and other administrative costs of
$750,000 for the IPO. What is the number of shares issued through this IPO?
65. Calculating Costs of Issuing Stock Paige's Purses, Inc., needs to raise $30 million in
new capital funding from a seasoned equity offering. In discussions with its investment bank,
Paige's Purses learns that the bankers recommend a gross price of $25.00 per share and they will
charge an underwriter's spread of $2.00 of the gross price. In addition, Paige's Purses must pay
$2 million in legal and other administrative expenses for the seasoned stock offering. What is the
number of shares of stock that Paige's Purses will need to sell to raise the $30 million?
66. Calculating Costs of Issuing Stock Beach Stuff, Inc., needs to raise $10 million in new
capital funding from a seasoned equity offering. In discussions with its investment bank, Beach
Stuff learns that the bankers recommend a gross price of $20.00 per share and they will charge
an underwriter's spread of $1.75 of the gross price. In addition, Beach Stuff must pay $1.5 million
in legal and other administrative expenses for the seasoned stock offering. What is the number of
shares of stock that Beach Stuff will need to sell to raise the $10 million?
67. You have approached your local bank for a start-up loan commitment for $175,000
needed to open a computer repair store. You have requested that the term of the loan be one
year. Your bank has offered you the following terms: size of loan commitment = $175,000, term =
one year, up-front fee = 75 basis points, back-end fee = 80 basis points. If you take down 75
percent of the total loan commitment, calculate the total fees you have paid on this loan
commitment.
68. Calculate the total fees a firm would have to pay when its bank offers the firm the
following loan commitment: A loan commitment of $1,500,000 with an up-front fee of 95 basis
points and a back-end fee of 25 basis points. The take-down on the loan is 50 percent.
69. Husker's Tuxedos, Inc., needs to raise $135 million to finance its plan for nationwide
expansion. In discussions with its investment bank, Husker's learns that the bankers recommend
an offer price (or gross price) of $43.55 per share and they will charge an underwriter's spread of
$2.25 per share. Calculate the net proceeds to Husker's from the sale of stock. How many shares
of stock will Husker's need to sell in order to receive the $135 million they need?
70. Don's Captain Morgan, Inc., needs to raise $25.5 million to finance plant expansion. In
discussions with its investment bank, Don's Captain Morgan learns that the bankers recommend
an offer price (or gross proceeds) of $19 per share and Don's Captain Morgan will receive $14.50
per share. How many shares of stock will Don's Captain Morgan need to sell in order to receive
the $25.5 million they need?
71. Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued $7.95
million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the
underwriter's spread was 4 percent of the gross proceeds. Calculate the amount of capital
funding Kelly Girl's Golf Games raised through this debt offering.
72. Bailey's Dog Pens, Inc., with the help of its investment bank recently issued $165,500,000
of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 7
percent of the gross proceeds. Calculate the amount of capital funding Bailey's Dog Pens, raised
through this bond issue.
