Bailey's Dog Pens, Inc., with the help of its investment bank recently issued 5 million shares of new stock. The offer price on the stock was $15 per share and Bailey's Dog Pens received a total of $65 million from the stock offering. What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

Question

Quizplus · Accepted Answer

The investment bank's fee is the difference between the total amount Bailey's Dog Pens received ($65 million) and the total amount the shares were sold for (5 million shares * $15/share = $75 million). This difference is $10 million ($75 million - $65 million). The percentage fee is then calculated as ($10 million / $75 million) * 100% = 13.33%.