Northern Air would like to sell 3,100 shares of stock using Dutch auction underwriting. The bids...

Northern Air would like to sell 3,100 shares of stock using Dutch auction underwriting. The bids received are: Bidder Quantity Price A 500 $ 29.05 B 600 28.70 C 1,000 28.55 D 1,200 28.20 E 1,400 28.00 How much will the company raise in its offer? Ignore all flotation and transaction costs.

Expert Solution

Dutch auction price is that auction in which all bids accepted are awarded at same price.

We will calculate cumulative number of shares up to which all shares can be sold.

First A bidder price $29.05 is highest. So 500 shares awarded to Bidder A

Now Shares left is 3100-500 = 2600 shares.

Then bidder B bid is higher $28.70

So 600 shares bidded by B will be awarded to B.

Now shares left is 2600-600 = 2000 shares.

Then Bidder C is highest that is $28.55.

So bidder C bid is accepted at $28.55 and Bidded shares 1000 Will be awarded to C.

Now shares left are = 2000-1000 = 1000 shares So 1000 shares will be awarded to higher bidde D among left bidders.

Last accept price is Bidder D bid that is $28.20 at which all shares are sold. So $28.20 bid is winning bid. All shares will be sold at $28.20

Money raised by dutch offering = 3100 shares*$28.20

=$87420

So Company will raise $87420 by its offering

jeff jeffy answered 2 years ago

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