Allied Corporation offers 40,000 shares of common stock to the public in an initial public offering (IPO). The underwriters agree to provide their services in a best efforts underwriting. The offering
Price is set at $28. The gross spread is $3. After completing their sales efforts the underwriters
Determine that they were able to sell a total of 36,750 shares. How much cash did Allied
Corporation receive from their IPO?

Question

Quizplus · Accepted Answer

To calculate the cash Allied Corporation received from the IPO, we need to first calculate the total proceeds generated from the sale of 36,750 shares:

Total proceeds = Number of shares sold x Offering price
Total proceeds = 36,750 x $28
Total proceeds = $1,029,000

From this total, we need to subtract the underwriters' gross spread:

Cash received = Total proceeds - Gross spread
Cash received = $1,029,000 - $3 x 36,750
Cash received = $1,029,000 - $110,250
Cash received = $918,750

Therefore, choice B is the correct answer.

Allied Corporation Offers 40,000 Shares of Common Stock to the Public