Question

In: Finance

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?

$5.25 per share? Use minus sign to enter loss, if any.
$
$6.25 per share? Use minus sign to enter loss, if any.
$
$4 per share? Use minus sign to enter loss, if any.
$

Solutions

Expert Solution

(a)

Average price per share received by underwriters= 5.25

Total number of shares= 3000000

Total proceeds to underwriter = 5.25*3000000= $15750000

proceeds to beedles =$14000000

Out of pocket expenses= $500000

Profit or loss on Underwriting = Total proceeds to underwriters - proceeds to beedles - out of pocket expenses

15750000-14000000-500000

$1250000

So, security brokers will incur profit of $1,250,000

(b)

Average price per share received by underwriters= 6.25

Total number of shares= 3000000

Total proceeds to underwriter = 5.25*3000000= $18750000

proceeds to beedles =$14000000

Out of pocket expenses=$ 500000

Profit or loss on Underwriting = Total proceeds to underwriters - proceeds to beedles - out of pocket expenses

18750000-14000000-500000

$4250000

So, security brokers will incur profit of $4,250,000

(c)

Average price per share received by underwriters= 4

Total number of shares= 3000000

Total proceeds to underwriter = 5.25*3000000= $12000000

proceeds to beedles =$14000000

Out of pocket expenses= $500000

Profit or loss on Underwriting = Total proceeds to underwriters - proceeds to beedles - out of pocket expenses

12000000-14000000-500000

-2500000

So, security brokers will incur loss of -$2500,000

Please thumbs up.

jeff jeffy answered 8 months ago

Next > < Previous

Related Solutions

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...

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 $470,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the...

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 $290,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the...

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...

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 $240,000. What profit or loss would Security Brokers incur if the issue were sold to the public...

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...

Problem 18-01 Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent...

Problem 18-01 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 $280,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? $5 per...

Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows:

Problem 18-01Profit or Loss on New Stock IssueSecurity 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 shareNumber of shares:3 millionProceeds to Beedles:$14,000,000The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $420,000. 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...

If closing stock appears in the trial balance then it appears in _______. A Trading account B Profit and Loss account C Balance sheet D Profit and loss appropriation

If closing stock appears in the trial balance then it appears in _______.A Trading accountB Profit and Loss accountC Balance sheetD Profit and loss appropriation

Howett Pockett, Inc., plans to issue 10.1 million new shares of its stock. In discussions with...

Howett Pockett, Inc., plans to issue 10.1 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $34.00 per share and they will charge an underwriter’s spread of 6.0 percent of the gross proceeds. In addition, Howett Pockett must pay $3.5 million in legal and other administrative expenses for the seasoned stock offering. Calculate the gross proceeds per share. (Round your answer to 2 decimal places.) Gross...

Subjects