Southaven, Inc., is offering 1,000 shares in a Dutch auction IPO. The following bids have been received:
$$\begin{array} { c c c }
\text { Bidder } & \text { Ountity } & \text {Price } \
\text { A } & 300 & \$ 25 \
\text { B } & 200 & 25 \
\text { C } & 500 & 22 \
\text { D } & 400 & 21 \
\text { E } & 200 & 20
\end{array}$$
How much will the firm receive from this offering if the underwriter's fee is 7.5%?

Question

Southaven, Inc., is offering 1,000 shares in a Dutch auction IPO. The following bids have been received:
$$\begin{array} { c c c } 
\text { Bidder } & \text { Ountity } & \text {Price } \
\text { A } & 300 & \$ 25 \
\text { B } & 200 & 25 \
\text { C } & 500 & 22 \
\text { D } & 400 & 21 \
\text { E } & 200 & 20
\end{array}$$
How much will the firm receive from this offering if the underwriter's fee is 7.5%?

Quizplus · Accepted Answer

The clearing price is $22, as bids A, B, and C cover the 1,000 shares. The firm receives 1,000 shares * $22 = $22,000. After a 7.5% fee, the firm receives $22,000 * (1 - 0.075) = $20,350.

Southaven, Inc How Much Will the Firm Receive from This Offering If