Computer Technology Corp. recently went public with an initial public offering of 7 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $8.35 per share and the underwriter's spread was 7 percent of the gross proceeds. Computer Technology also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by Computer Technology from the sale of the 7 million shares of stock.
A) $8.35
B) $8.39
C) $8.98
D) $9.02

Question

Quizplus · Accepted Answer

The gross proceeds per share can be calculated by dividing the net proceeds by (1 - underwriter's spread). Thus, $8.35 / (1 - 0.07) = $8.35 / 0.93 = $8.9785, which rounds to approximately $8.98. However, this calculation does not account for the legal and other administrative costs. To find the gross proceeds per share before these costs, we need to adjust the calculation to include these costs. Since the costs are $300,000 and there are 7 million shares, the cost per share is $300,000 / 7,000,000 = $0.0429. Adding this to the net proceeds per share before costs gives $8.98 + $0.0429 = $9.0229, which rounds to approximately $9.02. Therefore, the correct answer is $9.02 per share before deducting the underwriter's spread and other costs.