Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows:
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Price to public
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$5 per share
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Number of shares
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3 million
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Proceeds to Beedles
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$14,000,000
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The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?
a. $5 per share
b. $6 per share
c. $4 per share
Underwriters" compensation will be 5% of the issue price, so Beranek will net $20.90 per share.
The firm will also incur expenses in the amount of $150,000. How many shares must the firm sell to net $20 million after underwriting and flotation expenses?