Reference no: EM133001928

Magenta Corp. wants to raise $50 million in a seasoned equity offering, net of all fees. Magenta currently has 60 million shares selling for $10 per share. The underwriters will require a fee of $0.50 per share and indicate that the issue must be underpriced by 5%. In addition to the underwriter's fee, the firm will incur $1,000,000 in legal, administrative, and other costs.

Problem a. How many shares must Magenta sell?

Problem b. How many shares would Magenta have to sell to raise $50 million if they could sell shares directly to investors without any financial intermediary charging fees?

Problem c. Assuming the equity issuance has no effect on the value of any debt that Magenta has, what would be the stock price after the equity issuance.

Problem d. What would the stock price be if Magenta had raised $50 million (net of fees) through a bond issuance? Assume a 3% fee for the investment bank and that the debt issuance has no effect on the market value of any previously existing debt.