Question

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 $310,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? $5 per share? Use minus sign to enter loss, if any. $ $6 per share? Use minus sign to enter loss, if any. $ $4 per share? Use minus sign to enter loss, if any. $

Answer 1

Answer

Net Profit/Loss with Broker = (Average Price Per Share to public x no. of Shares) - Proceeds paid to Beedles - Out of Pocket expenses

Average Price per Share to Public (A)		5	6	4
No. of Shares (B)		3000000	3000000	3000000
Proceeds Received (C= A x B)		15000000	18000000	12000000
Proceeds to Beedles (D)		14000000	14000000	14000000
Net Proceeds with New Stock Secrity Brokers (E=C-D)		1000000	4000000	-2000000
Out of Pocket Expenses (F)		310000	310000	310000
Profit /Loss of Security Broker (G=E-F)		690000	3690000	-2310000

All above amounts are mentioned in US$