Video Games, Inc., with the help of its investment bank recently issued 10 million shares of new stock. The offer price on the stock was $47.50 per share and Video Games received a total of $446,500,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Video Games for underwriting the stock issue?

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Quizplus · Accepted Answer

The net proceeds are calculated as the total amount received, which is $446,500,000. The gross proceeds would have been 10 million shares multiplied by the offer price of $47.50, equaling $475,000,000. The difference between the gross proceeds and the net proceeds is the underwriter's spread, which is $475,000,000 - $446,500,000 = $28,500,000. To find the percentage that this spread represents of the gross proceeds, divide the spread by the gross proceeds and multiply by 100: ($28,500,000 / $475,000,000) * 100 = 6 percent.