Hilltop Market is offering 60,000 shares of stock to the public in a general cash offer.The offer price is $32 a share and the underwriter's spread is 7.5 percent.The administrative costs are estimated at $310,000.How much will Hilltop Market receive from this stock offering assuming the issue is completely sold?

Question

Quizplus · Accepted Answer

The total amount of money Hilltop Market will receive from this stock offering can be calculated as follows:

Total amount of money received = Offer price per share x Number of shares sold

Offer price per share = $32

Number of shares sold = 60,000

Total amount of money received = $32 x 60,000 = $1,920,000

However, the underwriter's spread and administrative costs must be subtracted from this amount to find out how much Hilltop Market will actually receive:

Underwriter's spread = 7.5% of $1,920,000 = $144,000

Administrative costs = $310,000

Total deductions = $144,000 + $310,000 = $454,000

Amount Hilltop Market will receive = $1,920,000 - $454,000 = $1,466,000.

Therefore, the best choice is C, $1,466,000.

Hilltop Market Is Offering 60,000 Shares of Stock to the Public