Problem 18-04 Calculating Costs of Issuing Stock (LG18-4)

Don's Captain Morgan, Inc. needs to raise $14.00 million to finance plant expansion. In discussions with its investment bank, Don's learns that the bankers recommend an offer price (or gross proceeds) of $21.90 per share and Don's will receive $19.65 per share.

Calculate the underwriter's spread per share on the issue.(Round your answer to 2 decimal places.)

How many shares of stock will Don's need to sell in order to receive the $14.00 million it needs?(Round your answer to the nearest whole number.)

Problem 16-3 Restructuring Strategy (LG16-1)

Suppose that Lil John Industries' equity is currently selling for $32 per share and that 2.5 million shares areoutstanding.The firm also has 55,000 bonds outstanding, which are selling at 104 percent of par.Assume Lil John was considering an active change to its capital structure so that the firm would have a (D/E) of 1.3.

Which type of security (stocks or bonds) would it need to sell to accomplish this?

• sell bonds and buy back stock?
• or
• sell stocks and buy back bonds?

How much would the firm have to sell?(Enter your answer in dollars not in millions. Do not round intermediate calculations and round your final answer to 2 decimal places.)