Answer:
= -$7,500,000 (the investment bank makes a loss of $7,500,000)
Explanation:
Step 1: Determine the profit or loss of the investment bank if it sells the shares for $11.2 per share
Agreed amount to pay to TWResearch =
$10.5 x 10,000,000= $105,000,000
Investment bank' profit = (11.2- 10.5) x 10 000 000 = $7,000,000
Step 2: However, since the investment bank can only sell the shares for $9.75, then the calculations will be as follows:
a) Agreed amount to pay to TWResearch =
$10.5 x 10,000,000= $105,000,000
b) Based on a selling price of $9.75
The profit or loss to the investment bank = the amount it sold the shares - the amount it bought the shares from the firm.
= ($9.75- $10.5) x 10 000 000
= 0.75 x 10000000
= -$7,500,000 (the investment bank makes a loss of $7,500,000)
