Question

A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting syndicate receives $0.15 per share. The syndicate members' compensation is $0.65 per share for each share they sell. The selling group's concession is $0.40 per share for each share they sell. The syndicate is allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. When the issue is completely sold, the managing underwriter's fee will total:

Answer 1

$12.20 per share for a total of $61,000,000

Step-by-step explanation:

Calculation to determine how much will the managing underwriter's fee will total:

First step is to calculate the underwriting risk. Amount

Underwriting risk=($0.65 - $0.40)

Underwriting risk=$0.25

Second step is to calculate The total spread is

Total spread=($0.15+ $0.25 +$0.40 )

Total spread=$0.80

Now let determine the amount The issuer will receive and the Total

Amount received = ($13.00 - $0.80)

Amount received=$12.20 per share

Total= ($12.20 x 5,000,000 shares)

Total = $61,000,000

Therefore When the issue is completely sold, the managing underwriter's fee will total:$12.20 per share for a total of $61,000,000