When a firm sells a new issue through an investment dealer,the costs incurred:
A) are the "give up" expense of the spread plus the legal and accounting fees,printing expense,and other small fees.
B) are the spread to the underwriter that includes all the costs of legal and accounting fees,printing expense,and other small fees.
C) are dependent upon the number of underwriters in the syndicate.
D) include the existing audit and accounting fees.

Question

Quizplus · Accepted Answer

When a firm sells a new issue through an investment dealer, the costs incurred include the "give up" expense of the spread, which is the difference between the price at which the securities are sold to the public and the price at which the investment dealer purchases them from the issuer. Additionally, there are various other costs such as legal and accounting fees, printing expenses, and other small fees related to registering and selling the securities. These costs are typically borne by the issuer and deducted from the proceeds of the sale. Therefore, option A is the best choice. Option B is incorrect because the spread only includes the cost of underwriting, not other fees. Option C is incorrect because the number of underwriters in the syndicate does not necessarily impact the costs incurred by the issuer. Option D is incorrect because it is unclear what "existing audit and accounting fees" refers to in this context.

When a Firm Sells a New Issue Through an Investment