When issuing new stock, a firm received $50 million while the underwriting spread was $4 million and total direct expenses were $6 million.The %age of the proceeds absorbed by direct expenses was:

Question

Quizplus · Accepted Answer

Total expenses = Underwriting spread + Direct expenses 
Total expenses = $4 million + $6 million = $10 million

Amount received by the firm after deducting expenses = $50 million - $10 million = $40 million

%age of the proceeds absorbed by direct expenses = (Direct expenses / Proceeds) x 100 
%age of the proceeds absorbed by direct expenses = ($6 million / $50 million) x 100 
%age of the proceeds absorbed by direct expenses = 12%

Therefore, the correct answer choice is C.

When Issuing New Stock, a Firm Received $50 Million While