Question

Northern Air would like to sell 4,500 shares of stock using Dutch auction underwriting. The bids received are:

Bidder		Quantity				Price
A			950			$	29.50
B			1,050				29.15
C			1,450				29.00
D			1,650				28.65
E			1,850				28.45

How much will the company raise in its offer? Ignore all flotation and transaction costs.

Answer 1

In a Dutch option, the lowest price at which all the shares company wishes to sell is completed, that price is selected.

So, let us calculate cumulative shares for the auction, and the price at which 4500 shares will be able to sell, that price will be selected.

Bidder	Share	Cumulative share	Price
A	950	950	$29.50
B	1050	2000	$29.15
C	1450	3450	$29
D	1650	5100	$28.65
E	1850	6950	$28.45

Since all 4500 share will not be sold until bidder D, final price is the lowest price at which all shares can be sold, which is $28.65

So, total fund raised = number of shares issued*Price = 4500*28.65 = $128925