Question

On January 20, Sullivan Inc., sold 9 million shares of stock in an SEO. The market price of Sullivan at the time was $40.50 per share. Of the 9 million shares sold, 5 million shares were primary shares being sold by the company, and the remaining 4 million shares were being sold by the venture capital investors. Assume the underwriter charges 5.1% of the gross proceeds as an underwriting fee.

a. How much money did Sullivan raise?  

After underwriting fees, Sullivan raised $______ million. (Round to two decimal places.)

b. How much money did the venture capitalists receive?

After underwriting fees, the venture capitalists received $____million. (Round to two decimal places.)

c. If the stock price dropped 2.7% on the announcement of the SEO and the new shares were sold at that price, how much money would Sullivan receive?

After underwriting fees Sullivan would receive $_____ million.  (Round to two decimal places.)

Answer 1

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Answer:

a)

Sullivan sold 5mn shares at $40.5 => 202.5Mn

Less: Fees @ 5.1% => 10.3275

Net proceeds received = $192.17 Mn

b)

Money be venture capitalist = 40.5 * 4 = 152 Mn

Less fess => 7.752Mn

Net proceeds received = $144.25 Mn

c)

If stock falls by 2.7% => 40.5 ( 1 -0.027) = 39.4065

Less fees =>

Net proceeds = 37.3967

Total amt received = $186.98 MN