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What is the dollar cost of the announcement effect

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Question - Young Corporation stock currently sells for $50 per share. There are 1 million shares currently outstanding. The company announces plans to raise $5 million by offering shares to the public at a price of $50 per share.

a. If the underwriting spread is 4%, how many shares will the company need to issue in order to be left with net proceeds (before other administrative costs) of $5 million?

b. If the under writing spread is 4% and the other administrative costs are $85,000, what is the dollar value of the total direct costs of the issue?

c. If the share price falls by 2% at the announcement of the plans to proceed with a seasoned offering, what is the dollar cost of the announcement effect?

Reference no: EM133042408

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