Saddles and Bridles, Inc., with the help of its investment bank recently issued 3 million shares of new stock. The offer price on the stock was $23.50 per share and Saddles and Bridles received a total of $68.385 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Saddles and Bridles. What percentage of the gross proceeds is the investment bank charging Saddles and Bridles for underwriting the stock issue?

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the offer price and the net proceeds per share. The net proceeds per share is the amount of money that Saddles and Bridles receives from the stock offering divided by the number of shares issued. In this case, the net proceeds per share is $22.75 ($68.385 million / 3 million shares). The underwriter's spread is $0.75 per share ($23.50 - $22.75). The underwriter's spread as a percentage of the gross proceeds is $0.75 / $23.50 * 100% = 3%.