Question

< Back to Assignment Attempts: Score: / 3 1. Problem 18-01 eBook 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 $260,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? $4.5 per share? Use minus sign to enter loss, if any. $ $6.5 per share? Use minus sign to enter loss, if any. $ $3.75 per share? Use minus sign to enter loss, if any.

Answer 1

Gross proceeds= Average price per share*number of shares outstanding

Profit/Loss= Gross proceeds- Proceeds to Beedles - expenses

FOR 4.5/SHARE

Gross proceeds= 4.5* 3000000 = 13500000

Profit/Loss= 13500000 - 14000000 - 260000

LOSS= -760000

FOR 6.5/SHARE

Gross proceeds= 6.5* 3000000 = 19500000

Profit/Loss= 19500000 - 14000000 - 260000

PROFIT = 5240000

FOR 3.75/SHARE

Gross proceeds= 3.75* 3000000 = 11250000

Profit/Loss= 11250000 - 14000000 - 260000

LOSS= -3010000