Reliant Underwriters has agreed to a firm commitment underwriting in which they will pay $36.75 million in exchange for 3 million shares of stock for an IPO offering. The offering price is expected to be $13.50 a share. How much will the underwriters earn if all of the shares can be sold?
A)$1.25 million
B)$2.75 million
C)$3.75 million
D)$4.25 million
E)$4.50 million

Question

Quizplus · Accepted Answer

The underwriters will earn the difference between the total amount they receive from selling the shares and the amount they paid for them. They sell 3 million shares at $13.50 each, totaling $40.5 million. They paid $36.75 million, so their earnings are $40.5 million - $36.75 million = $3.75 million.

Reliant Underwriters Has Agreed to a Firm Commitment Underwriting in Which