The O.K. Railroad needs to raise $9.5 million for capital improvements. One possibility is a new preferred stock issue – 8 percent dividend, $100 par value – stock that would yield 9 percent to investors. Flotation costs for an issue this size amount to 5 percent of the total amount of preferred stock sold. These costs are deducted from gross proceeds in determining the net proceeds to the company. (Ignore any tax considerations.) 1. At what price per share will the preferred stock be offered to investors? (Assume that the issue will never be called.) 2. How many shares must be issued to raise $9.5 million for the O.K. Railroad?

The O.K. Railroad needs to raise $9.5 million for capital improvements. One possibility is a new preferred stock issue – 8 percent dividend, $100 par value – stock that would yield 9 percent to investors. Flotation costs for an issue this size amount to 5 percent of the total amount of preferred stock sold. These costs are deducted from gross proceeds in determining the net proceeds to the company. (Ignore any tax considerations.) 1. At what price per share will the preferred stock be offered to investors? (Assume that the issue will never be called.) 2. How many shares must be issued to raise $9.5 million for the O.K. Railroad?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 26P

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