Calculating Costs of Issuing Stock Paige's Purses, Inc., needs to raise $25 million to finance plant expansion. In discussions with its investment bank, Paige's learns that the bankers recommend an offer price (or gross proceeds) of $50 per share and Paige's will receive $45 per share. What is the underwriter's spread on the issue?
A) $5
B) $45
C) $50
D) $0

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the offer price and the amount the company receives per share. In this case, the offer price is $50 and the company receives $45 per share, so the underwriter's spread is $5. Therefore, the correct answer is A.