Question

Video Games, Inc., with the help of its investment bank recently issued 10.09 million shares of new stock. The offer price on the stock was $47.95 per share, and Video Games received a total of $455,500,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Video for underwriting the stock issue? (Round your intermediate calculations and final answer to 2 decimal places.)

a) Net proceeds: $455,500,000; Underwriter's spread: $0; Percentage: 0%
b) Net proceeds: $450,000,000; Underwriter's spread: $5,500,000; Percentage: 1.21%
c) Net proceeds: $430,500,000; Underwriter's spread: $25,000,000; Percentage: 5.49%
d) Net proceeds: $400,000,000; Underwriter's spread: $55,500,000; Percentage: 12.20

Answer 1

The underwriter's spread is calculated by subtracting the total amount received by the company from the gross amount calculated by multiplying the number of shares by the offer price. The percentage charge of the gross price is obtained by dividing the underwriter's spread by the gross amount and multiplying by 100. However, there seems to be an inconsistency with the provided data, so an accurate answer cannot be determined without correct figures.

Step-by-step explanation:

The question involves calculating the net proceeds, underwriter's spread, and the percentage charge of the gross price for an investment bank underwriting a stock issue by Video Games, Inc. The company issued 10.09 million shares at an offer price of $47.95 per share and received $455,500,000 in total. To find the net proceeds, we must calculate the amount the company received after the investment bank's fees are deducted.

By multiplying the number of shares by the offer price, we can determine the gross amount before fees:

Gross amount = number of shares × offer price = 10.09 million shares × $47.95 = $483,816,500.

To find the net proceeds, we subtract the total amount received by the company from the gross amount:

Net proceeds = Gross amount - Total amount received = $483,816,500 - $455,500,000 = $28,316,500.

The underwriter's spread is the difference between the gross amount and the net proceeds that Video Games, Inc. received, which is the fee the underwriter charges for their services.

Underwriter's spread = Gross amount - Net proceeds = $483,816,500 - $455,500,000 = $28,316,500.

To find the percentage charge of the gross price, we divide the underwriter's spread by the gross amount and multiply by 100:

Percentage charge = (Underwriter's spread / Gross amount) × 100 = ($28,316,500 / $483,816,500) × 100 ≈ 5.85%

However, since none of the answer choices exactly match this calculation, it's likely there is a typo in the gross amount, net proceeds, or underwriter's spread given in the question. Without accurate data, I cannot confidently select one of the provided answer choices.