Question

1.  The authorized share capital of the Alfred Cake Company is 110,000

shares. The equity is currently shown in the company’s books as follows:

Common stock ($2 par value)       $73,000

Additional paid-in capital                23,000

Retained earnings                          43,000

Common equity                              $139,000

Treasury stock (2,000 shares)          17,000

Net common equity                        $122,000

a. How many shares are issued?

b. How many shares are outstanding?

c. How many more shares can be issued without the approval of shareholders?

2. Moonscape has just completed an initial public offering. The firm sold 6 million shares at an offer price of $6 per share. The underwriting spread was $0.40 a share. The price of the stock closed at $9.00 per share at the end of the first day of trading. The firm incurred $100,000 in legal, administrative, and other costs. What were flotation costs as a fraction of funds raised? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Costs as percent of fund raised ———–%

3. Young Corporation stock currently sells for $40 per share. There are 1 million shares currently outstanding. The company announces plans to raise $4 million by offering shares to the public at a price of $40 per share.

a. If the underwriting spread is 5%, how many shares will the company need to issue in order to be left with net proceeds (before other administrative costs) of $4 million? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

b. If other administrative costs are $70,000, what is the dollar value of the total direct costs of the issue? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

c. If the share price falls by 3% at the announcement of the plans to proceed with a seasoned offering, what is the dollar cost of the announcement effect? (Enter your answer in dollars not in millions.)

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