Question

The Benjamin Manneker Company is planning a major expansion program. To finance the program, Banneker plans to sell an issue of 200,000 shares of stock at $35.20 per share. The underwriting commissions will be 5.5% of the value of the stocks. Accounting fees, legal fees, printing costs, and other expenses are estimated to be $142,985. Find the total selling expense, net proceeds, and cost per share of the underwriting expenses for the Benjamin Banneker Company.

a) Total selling expense: $...
b) Net proceeds: $...
c) Cost per share of underwriting expenses: $...
d) None of the above.

Answer 1

The total selling expense for the Benjamin Banneker Company is $529,705. The net proceeds are $6,510,295. The cost per share of the underwriting expenses is $1.93 per share.

Step-by-step explanation:

To find the total selling expense for the Benjamin Banneker Company, we need to calculate the underwriting commissions and other expenses. The underwriting commissions are 5.5% of the value of the stocks, which can be calculated by multiplying 200,000 shares by $35.20 per share and then multiplying that by 5.5%. This gives us a total underwriting commission of $386,720. Additionally, we need to add the accounting fees, legal fees, printing costs, and other expenses, which amount to $142,985. The total selling expense is the sum of these two amounts, so it is $386,720 + $142,985 = $529,705.

The net proceeds can be found by subtracting the total selling expense from the value of the stocks. The value of the stocks is 200,000 shares multiplied by $35.20 per share, so it is $7,040,000. Therefore, the net proceeds are $7,040,000 - $529,705 = $6,510,295.

The cost per share of the underwriting expenses is the underwriting commissions divided by the number of shares. The underwriting commissions are $386,720 and the number of shares is 200,000, so the cost per share of the underwriting expenses is $386,720 ÷ 200,000 = $1.93 per share.