TV Technology Corp. recently went public with an initial public offering of 2 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $50.75 per share and the underwriter's spread was 6 percent of the gross proceeds. TV Technology also paid legal and other administrative costs of $400,000 for the IPO. Calculate the gross proceeds per share received by TV Technology from the sale of the 2 million shares of stock.

Question

Quizplus · Accepted Answer

The gross proceeds per share can be calculated by dividing the net proceeds by (1 - underwriter's spread). Given the net proceeds of $50.75 per share and an underwriter's spread of 6%, the calculation is $50.75 / (1 - 0.06) = $50.75 / 0.94 = $54.00 (not $54.20, correcting my initial mistake in choice selection). However, since none of the options exactly match this calculation and considering the context of the question, it seems there was a mistake in my explanation regarding the final figure. The correct approach involves understanding that the net proceeds already account for the underwriter's spread, and the question actually asks for the gross proceeds before the spread and additional costs are deducted. Given the misunderstanding in the calculation process, the correct answer should reflect the gross proceeds before any deductions, which would be higher than the net proceeds of $50.75. However, without the exact calculation leading to one of the provided choices due to the mistake in interpreting the question's requirement, the correct explanation involves recognizing the underwriter's spread is deducted from the gross proceeds to arrive at the net proceeds. The administrative costs are not deducted from the gross proceeds per share but from the total proceeds.