Problem:

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.

Required:

Question 1: 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?

Question 2: What profit or loss would the investment banker realize if the issue was sold to the public at an average price of $20 per share?

Question 3: 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?

Please provide step by step solution of each question and also provide all calculations.