Calculating Costs of Issuing Stock Your company needs to raise $10 million to finance plant expansion.In discussions with its investment bank,you learn that the bankers recommend a gross price of $45 per share and that 240,000 shares of stock be sold.If the net proceeds on the stock sale leave your company with $10 million,what is the underwriter's spread on the stock issue?
A)$3.33
B)$6.66
C)$45.00
D)$41.67

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the gross price and the net proceeds per share. The net proceeds per share is $10,000,000 / 240,000 = $41.67. The spread is $45 - $41.67 = $3.33.

Calculating Costs of Issuing Stock Your Company Needs to Raise