What %age of direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the underwriter sells the shares at $43 each?

Question

Quizplus · Accepted Answer

The total revenue generated from selling 3 million shares at $43 each is 3 million x $43 = $129 million. The underwriting spread of $3 per share results in a total expense of 3 million x $3 = $9 million. Additionally, $1 million in other expenses was incurred to sell the shares. Therefore, the total expenses incurred by the issuer is $10 million ($9 million + $1 million). 
The percentage of direct expense required to market the stock is calculated as: (Total expenses / Total revenue) x 100%
= ($10 million / $129 million) x 100%
= 7.75%
Therefore, the best choice is option C, which gives the correct percentage of direct expense required to market the stock.

What %Age of Direct Expense Is Required to Market Stock