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Kern Corporation entered into an agreement with its investment banker to sell 10 million shares of the company's stock with Kern netting $225 million from the offering. The expected price to the public was $25 per share. The out-of-pocket expenses incurred by the investment banker were $5 million.

a. What profit or loss would the investment banker incur if the issue were sold to the public at an average price of $25 per share?

b. What profit or loss would the investment banker realize if the issue were sold to the public at an average price of $20 per share?

c. Is the agreement between the company and its investment banker an example of a negotiated or a best-efforts deal? Why? Which is riskier to the company? Why?

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Financial Management, Finance

Category:- Financial Management
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