Question

An online medical advice company just completed an IPO with an investment bank on a firm-commitment basis. The firm issued 5 million shares of common stock, and the underwriting fees were $4.10 per share. The offering price was $24.90 per share. What were the total proceeds from the common-stock sale? (Round answer to nearest whole dollar, e.g. 5,275.)Total proceeds = __________$How much money did the company receive? (Round answer to nearest whole dollar, e.g. 5,275.) Net proceeds to firm = $How much money did the investment bank make? (Round answer to nearest whole dollar, e.g. 5,275.) Underwriting spread = _____________$

Answer 1

a) Total proceed = 5 million × $24.90 = $124.5 million

b) Net proceed = 5 million ($24.90 - $4.10)

= $104 million

c) Underwriting spread = 5 million × $4.10

= $20.5 million

Explanation:

a) Total proceed = Total Number of shares × Price per share

Given;

Total number of shares = 5 million

Price per share = $24.90 per share

Underwriting fee = $4.10 per share

Total proceed = 5 million × $24.90 = $124.5 million

b) Net proceed = Number of shares(price per share - underwriting fee)

Net proceed = 5 million ($24.90 - $4.10) = $104 million

c) Underwriting spread = Number of shares × underwriting fee

Underwriting spread = 5 million × $4.10 = $20.5 million