Question

Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the total per-share underwriting fees to the investment banker? Multiple Choice $23.50 $1.25 $1.89 $1.50

Answer 1

$1.89

Step-by-step explanation:

Given that,

Shares to be issued = 700,000 shares

Per share price to public = $25

Spread = 5%

Out of pocket cost = $450,000

Total per-share underwriting fees:

= [(Shares to be issued × Per share price to public × Spread) + Out of pocket cost] ÷ Shares to be issued

= [(700,000 × $25 × 0.05) + $450,000] ÷ 700,000

= $1.8929

= $1.89 (approx)