Question

Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows: Price to public: $5 per share Number of shares: 3 million Proceeds to Beedles: $14,000,000 The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $430,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? $4.75 per share? Use minus sign to enter loss, if any. $ $5.75 per share? Use minus sign to enter loss, if any. $ $4 per share? Use minus sign to enter loss, if any. $

Answer 1

a) -$180,000

b) $2,820,000

c) -$2,430,000

Step-by-step explanation:

a) To calculate the profit or loss that the Security Brokers would incur if the issue were sold to the public at $4.75 per share, we have the following:

= (number of shares * price to public) - (proceeds to Beedles) - (out of pocket expenses)

= (3,000,000 * 4.75) - (14,000,000) - (430,000)

= -$180,000

The loss at $4.75 per share is $180,000

b) To calculate the profit or loss that the Security Brokers would incur if the issue were sold to the public at $5.75 per share, we have the following:

= (number of shares * price to public) - (proceeds to Beedles) - (out of pocket expenses)

= (3,000,000 * 5.75) - (14,000,000) - (430,000)

= $2,820,000

The profit at $5.75 per share is $2,820,000

c) To calculate the profit or loss that the Security Brokers would incur if the issue were sold to the public at $4 per share, we have the following:

= (number of shares * price to public) - (proceeds to Beedles) - (out of pocket expenses)

= (3,000,000 * 4) - (14,000,000) - (430,000)

= -$2,430,000

The loss at $4 per share is $2,430,000