Answer:
a. Profit = $780,000
b. Profit = $3,780,000
c. Loss = $2,220,000
Explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question as follows:
Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $220,000. 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
The explanation of the answer is now given as follows:
The profit or loss can be calculated using the following formula:
Profit or loss = Sales proceed - Net proceeds to Beedles - Out-of-pocket expenses incurred by Security Brokers ........... (1)
Where;
Sales proceed = Average price * Number of shares = Average price per share * 3,000,000
Net proceeds to Beedles = 14,000,000
Out-of-pocket expenses incurred by Security Brokers = $220,000
We can proceed as follows:
a. profit or loss at average price $5 per share
Substituting all the values into equation (1), we have:
Profit or loss = ($5 * 3,000,000) - $14,000,000 - $220,000 = $780,000 profit
b. profit or loss at average price $6 per share
Substituting all the values into equation (1), we have:
Profit or loss = ($6 * 3,000,000) - $14,000,000 - $220,000 = $3,780,000 profit
c. profit or loss at average price $4 per share
Substituting all the values into equation (1), we have:
Profit or loss = ($4 * 3,000,000) - $14,000,000 - $220,000 = -$2,220,000 loss
