Extreme Adventures Inc. needs to raise capital and has hired Solomon Sisters to be its investment banker (IB). The Sisters recommend a sale of common stock and estimate the firm could raise a gross amount of $7,500,000 if they could sell 300,000 shares of stock at $25 per share. Solomon has offered two compensation methods for its work on the sale of these securities. The first is a best-efforts arrangement where Extreme will pay Solomon $1.00 for every share issued. The second is a firm-commitment of $7,000,000. If Solomon is able to sell the entire issue at the recommended price, how much money will it make under each arrangement? What is the break-even point in sales percent between firm commitment and best efforts for Extreme Adventures?

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The Answer of Extreme Adventures Inc. needs to raise capital and has hired Solomon Sisters to be its investment banker (IB). The Sisters recommend a sale of common stock and estimate the firm could raise a gross amount of $7,500,000 if they could sell 300,000 shares of stock at $25 per share. Solomon has offered two compensation methods for its work on the sale of these securities. The first is a best-efforts arrangement where Extreme will pay Solomon $1.00 for every share issued. The second is a firm-commitment of $7,000,000. If Solomon is able to sell the entire issue at the recommended price, how much money will it make under each arrangement? What is the break-even point in sales percent between firm commitment and best efforts for Extreme Adventures?