Your company needs to raise $10 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $45 per share and that 240,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $10 million, what is the underwriter's spread on the stock issue?

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the gross price and the net proceeds per share. If 240,000 shares are sold to raise $10 million, the net proceeds per share are $10,000,000 / 240,000 = $41.67. The gross price is $45, so the spread is $45 - $41.67 = $3.33.

Your Company Needs to Raise $10 Million to Finance Plant