Effect of offer on raggio price per share

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Example1

Raggio, Inc., has 100,000 shares of stock outstanding. Each share is trading for $80, so the company's market value of equity is $8,000,000. Suppose the firm issues 20,000 new shares at the following prices: $80, $75, and $65. What will the effect be of each of these alternative offering prices on Raggio's price per share?

Example 1 above ignores the underwriting spread, which is very real and can be quite large. The largest spreads as a % of the offer size are associated with small equity offers, which Raggio's sale of 20,000 new shares certain is. Let's assume that Raggio's underwriter will be able to sell 20,000 new shares at $75 per share, but it will also require a 15% underwriting spread, so Raggio's net proceeds will be 85% of the offer. What will be the effect of this offer on Raggio's price per share?

Reference no: EM132201282

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