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Profit or Loss on New Stock Issue Security Brokers Inc. specializes in underwriting new issues by...
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 $500,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?
- $4.5 per share? Use minus sign to enter loss, if any.
$ - $6.25 per share? Use minus sign to enter loss, if any.
$ - $3.75 per share? Use minus sign to enter loss, if any.
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Expert Solution
Answer to Part a.
Price to Public = $4.50 per share
Number of Shares = 3,000,000 Shares
Proceeds from public = $4.50 * 3,000,000 = $13,500,000
Profit / (Loss) = Proceeds from public – Proceeds to Company
–Out of Pocket Expenses
Profit / (Loss) = $13,500,000 - $14,000,000 - $500,000
Loss = -$1,000,000
Answer to Part b.
Price to Public = $6.25 per share
Number of Shares = 3,000,000 Shares
Proceeds from public = $6.25 * 3,000,000 = $18,750,000
Profit / (Loss) = Proceeds from public – Proceeds to Company
–Out of Pocket Expenses
Profit / (Loss) = $18,750,000 - $14,000,000 - $500,000
Profit = $4,250,000
Answer to Part c.
Price to Public = $3.75 per share
Number of Shares = 3,000,000 Shares
Proceeds from public = $3.75 * 3,000,000 = $11,250,000
Profit / (Loss) = Proceeds from public – Proceeds to Company
–Out of Pocket Expenses
Profit / (Loss) = $11,250,000 - $14,000,000 - $500,000
Loss = -$3,250,000
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Proceeds to Beedles:
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Number of shares:
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Proceeds to Beedles:
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