Question

Global Traders is offering 130,000 shares of stock to the public in a general cash offer. The offer price is $38 a share and the underwriter's spread is 8 percent. The administrative costs are estimated at $865,000. How much will Global Traders receive from this stock offering as net proceeds assuming the issue is completely sold?
a. $3,370,800
b. $3,679,800
c. $4,490,000
d. $4,075,000
e. $3,828,400

Answer 1

Answer:

correct option is b. $3,679,800

Explanation:

given data

offering = 130,000 shares

offer price = $38

underwriter spread = 8 percent

administrative costs = $865,000

solution

we get here Net proceeds from sale that is express as

Net proceeds = Gross proceeds - Underwriter's spread - Administrative costs ....................1

here Gross proceeds from sale is = offering share × offer price

Gross proceeds from sale is  = 130000 × $38

Gross proceeds from sale is  = $49,40,000

and Underwriter's spread will be offering share × offer price  × underwriter spread %

Underwriter's spread = $49,40,000 × 8%

Underwriter's spread = $3,95,200

so Net proceeds  will be

Net proceeds = $49,40,000 - $3,95,200 - $865,000

Net proceeds = $3,679,800

so correct option is b. $3,679,800