Your company needs to raise $50 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $75 per share and that 675,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $50 million, what is the underwriter's spread per share 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. In this case, the gross price is $75 per share and the net proceeds are $50 million / 675,000 shares = $74.07 per share. Therefore, the underwriter's spread is $75 - $74.07 = $0.93 per share.

Your Company Needs to Raise $50 Million to Finance Plant