An online medical advice company just completed an IPO with an investment bank o
ID: 2635952 • Letter: A
Question
An online medical advice company just completed an IPO with an investment bank on a firm-commitment basis. The firm issued 5 million shares of common stock, and the underwriting fees were $4.70 per share. The offering price was $27.60 per share.
What were the total proceeds from the common-stock sale? (Round answer to nearest whole dollar, e.g. 5,275.)
Total proceeds = $
How much money did the company receive? (Round answer to nearest whole dollar, e.g. 5,275.)
Net proceeds to firm = $
How much money did the investment bank make? (Round answer to nearest whole dollar, e.g. 5,275.)
Underwriting spread = $
Explanation / Answer
The firm issued 5 million shares of common stock, and the underwriting fees were $4.70 per share. The offering price was $27.60 per share.
Total Proceeds from the issue = Number of shares issued x offer price
Total proceeds = 5mn x $27.60
Total proceeds = $138mn
Amount received bt the company = number of shares (offer price - underwriting fees)
Amount received by the company = 5mn ($27.60 - $4.70)
Amount received by the company = $114.5 mn
Money received by the underwriter = number of shares x underwriting fees
Money received = 5mn x $4.70 = $23.5 mn
Underwriting spread = Underwriting fees / offer price x100
Underwriting spread = $4.70 / $27.60 x100 = 17.03%