Question

Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $200,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answers to the nearest dollar. Loss should be indicated by a minus sign.

1. $5.25 per share?

   $  

2. $6.25 per share?

   $  

3. $4 per share?

   $

Answer 1

a). Profit/loss of security broker = [Share Price * Shares Outstanding] - Proceeds to Beedles - Out-of-pocket expenses

= [$5.25 * 3,000,000] - $14,000,000 - $200,000

= $15,750,000 - $14,200,000 = $1,550,000

b). Profit/loss of security broker = [Share Price * Shares Outstanding] - Proceeds to Beedles - Out-of-pocket expenses

= [$6.25 * 3,000,000] - $14,000,000 - $200,000

= $18,750,000 - $14,200,000 = $4,550,000

c). Profit/loss of security broker = [Share Price * Shares Outstanding] - Proceeds to Beedles - Out-of-pocket expenses

= [$4 * 3,000,000] - $14,000,000 - $200,000

= $12,000,000 - $14,200,000 = -$2,200,000