Question

Ebay, Inc. went public in September of 1998. The following information on shares outstanding was listed in the final prospectus filed with the SEC. In the IPO, the Ebay issued 3,500,000 new shares. The initial price to the public was $18.00 per share. The final first-day closing price was $44.88. If the investment bankers retained $1.26 per share as fees, what was the net proceeds to Ebay in dollars

Answer 1

The net proceeds to eBay from their IPO in 1998 was $58,590,000 after deducting the fees retained by the investment bankers.

Step-by-step explanation:

The net proceeds to eBay can be calculated by subtracting the fees retained by the investment bankers from the total proceeds from the IPO. In this case, eBay issued 3,500,000 new shares at a price of $18.00 per share. The total proceeds from the IPO would be $18.00 multiplied by 3,500,000, which equals $63,000,000. The fees retained by the investment bankers would be $1.26 per share, so the total fees would be $1.26 multiplied by 3,500,000, which equals $4,410,000.

To find the net proceeds, we subtract the total fees from the total proceeds: $63,000,000 - $4,410,000 = $58,590,000.

Therefore, the net proceeds to eBay were $58,590,000.

Answer 2

Net proceeds to Ebay = $ 58,590,000.

Step-by-step explanation:

An Initial Public Offering(IPO) refers to the sales of new block of shares to the general public by a company for the purpose of raising equity capital.

This exercise is always promoted by a third-party company referred to as an underwriter for a fee. The underwriter adds value to the capital raising share offering by contracting to buy up unsold share units should they be undersubscribed. The underwriting fee is a cost to the issuing company.

The net share capital due to the company is computed as follows

Gross share proceeds - underwriting fee

= (3,500,000 × $18.00) - (3,500,000× $1.26)

=$ 58,590,000.

Net proceeds to Ebay = $ 58,590,000.

The closing price of $44.88 is a distracter and should be ignored.