Profit or loss on new stock issue

Reference no: EM13661667

Public and Private
Financing: Initial Offerings,
Seasoned Offerings, and
Investment Banks

Brigham, Eugene F.; Ehrhardt, Michael C. (2013-01-28). Financial Management: Theory & Practice (Finance Titles in the Brigham Family) (Page 729). Cengage Textbook. Kindle Edition.

(18-1) Profit or Loss on New Stock Issue

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 $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?
a. $5 per share
b. $6 per share
c. $4 per share

(18-2) Underwriting and Flotation Expenses

The Beranek Company, whose stock price is now $25, needs to raise $20 million in
common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $22 per share because of signaling effects. The underwriters compensation will be 5% of the issue price, so Beranek will net $20.90 per share. The firm will also incur expenses in the amount of $150,000.
How many shares must the firm sell to net $20 million after underwriting and flotation
expenses?

Reference no: EM13661667

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