Question

Pawprints paint recently went public in a best efforts offering. the company offered 130,000 shares of stock for sale at an offer price of $20 per share. the administrative costs associated with the offering were $370,000 and the underwriter's spread was 7 percent. after completing their sales efforts, the underwriters determined that they sold a total of 125,100 shares. what were the net proceeds to the company?

A. 1,678,000
B. $2,048,000
C. $1,586,860
D. $2,326,860
E. $1,956,860

Answer 1

The net proceeds to Pawprints Paint company from their IPO, after accounting for the underwriter's spread and administrative costs, is $1,956,860. Therefore correct option is E

Step-by-step explanation:

The student is asking for the calculation of net proceeds to Pawprints Paint company from their initial public offering (IPO).

To calculate the net proceeds, we need to take the total amount raised from the shares sold and then subtract the underwriter's spread and any administrative costs.

The amount raised is calculated by multiplying the number of shares sold by the offer price.

Here, it would be 125,100 shares × $20 per share = $2,502,000.

The underwriter's spread is the percentage the underwriters receive, which is 7% of the total amount raised. So, the underwriter's spread amounts to 0.07 × $2,502,000 = $175,140.

Subtracting this from the amount raised gives us $2,502,000 - $175,140 = $2,326,860.

However, we must also account for administrative costs of $370,000.

Subsequently, the net proceeds to the company would be calculated as $2,326,860 - $370,000 = $1,956,860.