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Luther Industries is in the process of selling shares in an auction IPO. At the end of the bidding period, Luther's investment bank has received the following bids:

-What will the offer price of these shares be if Luther is selling 1 million shares?

Question

Use the information for the question(s)below.
Luther Industries is in the process of selling shares in an auction IPO. At the end of the bidding period, Luther's investment bank has received the following bids:
 
-What will the offer price of these shares be if Luther is selling 1 million shares?

Quizplus · Accepted Answer

To find the offer price, we need to find the highest bid that will allow Luther to sell 1 million shares. The bids are sorted in descending order, so we start with the highest bid of $17.75.

$17.75 x 100,000 = $1,775,000 (number of shares bid x bid price)

However, Luther only wants to sell 1 million shares, so we need to move down the list of bids until we reach a bid that will allow us to sell exactly 1 million shares.

$17.50 x 100,000 = $1,750,000
$17.25 x 200,000 = $3,450,000 (cumulative shares bid = 300,000)
$17.00 x 300,000 = $5,100,000 (cumulative shares bid = 600,000)
$16.75 x 400,000 = $6,700,000 (cumulative shares bid = 1,000,000)

Therefore, the offer price will be $16.75 per share.

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