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Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of...
Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows:
| Price to public: | $5 per share |
| Number of shares: | 3 million |
| Proceeds to Beedles: | $14,000,000 |
The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $400,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?
- $5 per share? Use minus sign to enter loss, if any.
$ - $7 per share? Use minus sign to enter loss, if any.
$ - $3.5 per share? Use minus sign to enter loss, if any.
$
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Expert Solution
answer 1
Share price at which shares sold = $5
number of shares = 3000000
Proceeds to underwriter = number of shares * sale price of shares
=3000000*5
=$15,000,000.00
Proceeds paid to Beedles = 14000000
out of pocket expenses = 400000
Net profit or loss = Proceeds to underwriting firm - proceeds paid to Beedles - out of pocket expenes
=15000000-14000000-400000
=$600,000.00
net profit to firm is $600,000.00
answer 2
Share price at which shares sold = $7
number of shares = 3000000
Proceeds to underwriter = number of shares * sale price of shares
=3000000*7
=$21,000,000.00
Proceeds paid to Beedles = 14000000
out of pocket expenses = 400000
Net profit or loss = Proceeds to underwriting firm - proceeds paid to Beedles - out of pocket expenes
=21000000-14000000-400000
=$$6,600,000.00
net profit to firm is $6,600,000.00
answer 3
Share price at which shares sold = $3.5
number of shares = 3000000
Proceeds to underwriter = number of shares * sale price of shares
=3000000*3.5
=$10,500,000.00
Proceeds paid to Beedles = 14000000
out of pocket expenses = 400000
Net profit or loss = Proceeds to underwriting firm - proceeds paid to Beedles - out of pocket expenes
=10500000-14000000-400000
=-$3,900,000.00
net profit or loss to firm is -$3,900,000.00 or loss of 3900000
jeff jeffy answered 2 years agoRelated Solutions
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