Question

The MEP company has issued 5,080,000 new shares. Its investment bank agrees to underwrite these shares on a best efforts basis. The investment bank is able to sell 4,280,000 shares for $59 per share. It charges MEP $1.65 per share sold.

a. How much money does MEP receive? (Do not round intermediate calculations. Enter your answer in dollars, not in millions.)
b. What is the investment bank’s profit? (Enter your answer in dollars, not in millions.)
c. What is the stock price of MEP? (Enter your answer in dollars, not in millions.)

Answer 1

(a)-Money to be received by MEP Company

Money to be received by MEP Company = Number of shares sold by investment bank x (Selling price per share – Charges per share sold)

= 4,238,000 Shares x ($59.00 per share - $1.65 per share)

= 4,280,000 Shares x $57.35 per share

= $245,458,000

(b)-Profit earned by the investment bank

Profit earned by the investment bank = Number of shares sold by investment bank x Charges per share sold

= 4,280,000 Shares x $1.65 per share

= $7,062,000

(c)-Stock price of MEP Company

The Stock price of MEP Company is $59.00 per share, because this the price paid by the publics to acquire/purchase the shares.