The Bull Bows (BB) investment banking firm has proposed two types of payment plans for the IPO being considered by Johnson JerryRig, a manufacturer of oil drilling equipment. The first is a firm commitment of $10,000,000. The second is a best effort in which BB will receive $3.00 for every share sold up to a maximum of $1,200,000 for the 400,000 shares being offered. How much money will BB earn under the best efforts method if it is able to sell only 90% of the offering at a price of $30.00 per share?

Question

Quizplus · Accepted Answer

Under the best efforts method, BB will receive $3.00 for every share sold up to a maximum of $1,200,000 for the 400,000 shares being offered. If BB is able to sell only 90% of the offering that would be 360,000 shares (90% of 400,000). So, the maximum amount BB can earn would be $3.00 x 360,000 = $1,080,000. Therefore, the best choice is option B.

The Bull Bows (BB) Investment Banking Firm Has Proposed Two