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Problem 18-01 Profit or Loss on New Stock Issue Security Brokers Inc. specializes in underwriting new...

Problem 18-01 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 $210,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?

a. $5.5 per share? Use minus sign to enter loss, if any.

$ b. $5.75 per share? Use minus sign to enter loss, if any.

$ c. $3.75 per share? Use minus sign to enter loss, if any.

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Answer:

a)

($5.5 x 3 mil shares = $16.5 mil -14 mil proceeds to Bettles, Inc. - $210k Out of Pocket expenses = $2,290,000

b)

($5.75 x 3 mil shares = $17.25 mil -14 mil proceeds to Bettles, Inc. - $210k Out of Pocket expenses = $3,040,000

c)

($3.75 x 3 mil shares = $11.25 mil -14 mil proceeds to Bettles, Inc. - $210k Out of Pocket expenses = -$2,960,000

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