A U.S. Firm wants to raise $10 million of capital so it can invest in new technology. How much will it need to raise in order to net $10 million, using the average costs of raising funds.
http://supportingadvancement.com/faq/cost_per_dollar_raised.htm
Ms. Sue, thank you for sending me this link. I am having trouble putting the pieces together to fit my problem above. Could you perhaps explain it a little further?
To determine how much the U.S. firm needs to raise in order to net $10 million, we need to take into account the average costs of raising funds. In this case, we assume that the average costs include transaction fees, expenses, and any other charges incurred in the process.
Here's a step-by-step approach to calculate the amount the firm needs to raise:
1. Determine the average costs of raising funds:
Find out the average percentage or flat fee charged for raising funds by financial institutions, investment banks, or any other intermediaries involved in the process. For example, if the average cost is 5%, it means that 5% of the total funds raised will be used to cover expenses.
2. Calculate the gross amount needed to cover the costs:
Divide the desired net amount ($10 million) by (1 - average cost percentage). If the average cost is a flat fee, subtract the fee from the desired net amount. This will give you the gross amount required to cover the costs.
Example calculation:
If the average cost is 5%: $10 million / (1 - 0.05) = $10,526,316.
In this example, the U.S. firm would need to raise approximately $10,526,316 in order to have a net amount of $10 million after accounting for average costs of raising funds.
It's important to note that the actual costs may vary, so it's advisable to consult with financial professionals, such as investment bankers or financial advisors, to get a more accurate estimate of the costs involved in raising funds.