Question

Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $17.90 per share for 640,000 shares. The company will receive $16.25 per share and will incur $190,000 in registration, accounting, and printing fees.

a-1. What is the spread on this issue in percentage terms? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

a-2. What are the total expenses of the issue as a percentage of total value (at retail)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. If the firm wanted to net $19.31 million from this issue, how many shares must be sold? (Do not round intermediate calculations. Enter your answer rounded to the nearest whole number.)

Answer 1

Spread is the difference between the price an Investment banker sells the shares to the public and the price receives from the company.

1. Here the spread will be (17.9-16.25)/17.9=9.22%

2.Total Value=$17.9*640,000=$11,456,000

Underwriting expenses=$(17.9-16.25)*640,000=$1,056,000

Registration, accounting and printing expenses=$190,000

Total expenses=$1,246,000

Percentage of expenses to the totalvalue= $1246000/11456000=10.87%

3. Net Price company got at present=$16.25

Per share registration, accounting & printing costs=$190,000/640,000=0.3

Total price of the share cost should be at $16.55

To get Net $19.31 million, company should issue=$19310000/16.55=1,166,988 shares