Tee Time Golf Resort found that Jordan Spieth wants to put his name on golf course designs. However, for any course to be acceptable, it will cost at least $20 million to build. The plan is to purchase real estate for four new golf resorts. Proceeding with their venture, the owners have calculated that they will need approximately $100 million. But putting together an IPO is another matter. After meeting with their investment banker, they believe that investors will be willing to pay $22/share for the IPO. As the ________ for this issue, the investment bank requires 3% of the revenues generated by the sale. Tee Time will need to issue ________ shares in order to have the $100 million they need to proceed with their plan.

Question

Quizplus · Accepted Answer

When the investment banker serves as an underwriter, it buys the entire issue and takes the risk of selling it to interested investors in the primary market. In order to take the risk and perform the responsibilities of an intermediary, they will purchase the issue at a discount to the market value, and then sell it to investors for the full market value. The number of shares that will be sold at full market value = $100 million ÷ $22/share = 22,000,000 shares; however, in order to pay the underwriting fee, they will need to issue more than 4.5 million shares.

Tee Time Golf Resort Found That Jordan Spieth Wants to Put