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In: Finance
Problem 18-01 Profit or Loss on New Stock Issue Security Brokers Inc. specializes in underwriting new...
Problem 18-01
Profit or Loss on New Stock Issue
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 $370,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?
- $5.5 per share? Use minus sign to enter loss, if any.
$ - $5.75 per share? Use minus sign to enter loss, if any.
$ - $3.75 per share? Use minus sign to enter loss, if any.
$
Solutions
Expert Solution
a) Price to Public = $ 5.50
Number of Shares = 3 Million
Gross Proceeds to Security Brokers = Price to Public * Number of Shares
= 5.50 * 3,000,000
= $ 16,500,000
Expenses = $ 370,000
Net Proceeds = Gross Proceeds - Expenses
= 16,500,000 - 370,000
= $ 16,130,000
Proceeds to Beedles : $ 14,000,000
Profit to Security Brokers = Net Proceeds - Proceeds to Beedles
= 16,130,000 - 14,000,000
= $ 2,130,000
b) Price to Public = $ 5.75
Number of Shares = 3 Million
Gross Proceeds to Security Brokers = Price to Public * Number of Shares
= 5.75 * 3,000,000
= $ 17,250,000
Expenses = $ 370,000
Net Proceeds = Gross Proceeds - Expenses
= 17,250,000 - 370,000
= $ 16,880,000
Proceeds to Beedles : $ 14,000,000
Profit to Security Brokers = Net Proceeds - Proceeds to Beedles
= 16,880,000 - 14,000,000
= $ 2,880,000
c) Price to Public = $ 3.75
Number of Shares = 3 Million
Gross Proceeds to Security Brokers = Price to Public * Number of Shares
= 3.75 * 3,000,000
= $ 11,250,000
Expenses = $ 370,000
Net Proceeds = Gross Proceeds - Expenses
= 11,250,000 - 370,000
= $ 10,880,000
Proceeds to Beedles : $ 14,000,000
Loss to Security Brokers = Net Proceeds - Proceeds to Beedles
= 10,880,000 - 14,000,000
= $ -3,120,000
Hope I am able to solve your concern. If you are satisfied hit a thumbs up !!!
jeff jeffy answered 1 year agoRelated Solutions
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Proceeds to Beedles:
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Number of shares: 3 million
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Number of shares:
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