CFIN6
Chapter 3 Spreadsheet Problem
The Financial Environment
The problem requires you to use File C03 on the computer problem spreadsheet.
Diction Publishing estimates that it needs $500,000 to support its expected growth. The underwriting
fees charged by the investment banking firm for which you work are 6.5% for such issue sizes. In
addition, it is estimated that Diction will incur $4,900 in other expenses related to the IPO.
a. If your analysis indicates that Diction’s stock can be sold for $40 per share, how many shares must
be issued to net the company the $500,000 it needs?
c. Suppose that Diction’s investment banker charges 8.2% rather than 6.5%. Assuming that all other
information given earlier is the same, how many shares must Diction issue in this situation to net
the company the $500,000 it needs?
e. Now suppose that Diction decides it only needs $450,000 to support its growth. In this case, its
investment banker charges 7% flotation costs, and Diction will incur only $3,840 in other expense.
How many shares must Diction issue to net the company the $450,000 it needs?