Question

# 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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