Calculating Costs of Issuing Stock Amy's Accessories, Inc., needs to raise $10 million to finance plant expansion. In discussions with its investment bank, Amy's learns that the bankers recommend an offer price (or gross proceeds) of $25 per share and Amy's will receive $23 per share. What is the underwriter's spread on the issue?
A) $0
B) $2
C) $23
D) $25

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the offer price and the amount the company actually receives per share. In this case, the offer price is $25 per share and Amy's will receive only $23 per share. Thus, the underwriter's spread is $2 per share.