When a company issues new stock, it divides control of the firm over a greater number of shareholders. In return, it manages to obtain new equity, which offers more capital for investment. The amount of new capital depends on the number of new shares in the offering and the amount that investors pay for each share. This new equity joins the equity the company already holds, which depends on the outstanding shares that the firm has already issued.
1. Multiply the number of outstanding shares by the stock price to find the company's existing equity. For example, if the company has already issued 1,500 shares of stock that are worth $75 each, the company has $112,500 in existing equity (1,500 × $75 = $112,500).
2. Subtract this existing equity from the firm's target equity. For example, if the company wants a total of $150,000 in equity and has $112,500 in current equity, it is $37,500 short of its goal ($150,000 - $112,500 = $37,500).
3. Divide this value by the price of the new shares. For example, if the company issues the new shares at $60 each, the company must issue 625 new shares to meet its target ($37,500 ÷ $60 = 625).
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