Carnation Corporation is planning to go public. The firm will offer one million common shares for sale. The estimated selling price is $40 per share with Carnation Corp receiving $35.50 per share after the offering. Expenses related to the issue include registration fees of $300,000 and legal fees of $200,000

Required:

a) Determine the spread in dollars and in percent. (3 marks)

b) Determine the total expenses of the issue. (2 marks)

c) If Carnation Corp. needs to generate $36 million, how many shares will have to be sold? (2 marks)

d) If the underwriting spread is increased by 10%, how many shares will have to be sold to generate the $36 million. (2 marks)