GHX Ltd.(GHX)needs to issue an additional $50,000,000 in common shares.GHX's investment banker has determined that the new shares could be issued at a retail price of $30 and the underwriting costs will be $2.25 a share.If other issuance costs would be $1,500,000 how many shares would GHX need to issue?
A) 2,456,900
B) 1,855,856
C) 500,000
D) 4,888,999

Question

Quizplus · Accepted Answer

First, we need to determine the total cost of issuing the shares:
Underwriting costs per share = $2.25
Other issuance costs = $1,500,000
Total cost per share = $2.25 + ($1,500,000 / $50,000,000) = $2.55
Retail price per share = $30
Therefore, the proceeds per share would be:
$30 - $2.55 = $27.45
To determine how many shares GHX would need to issue, divide the total amount to be raised ($50,000,000) by the proceeds per share ($27.45):
$50,000,000 / $27.45 = 1,820,276
However, this number does not include the underwriting costs, which would be an additional expense for GHX. To find the total number of shares that would need to be issued including underwriting costs, divide the total cost of issuing the shares by the proceeds per share:
($50,000,000 + ($2.25 * 1,820,276) + $1,500,000) / $27.45 = 1,855,856
Therefore, GHX would need to issue approximately 1,855,856 shares. The best choice is B.

GHX Ltd(GHX)needs to Issue an Additional $50,000,000 in Common Shares