ABC Underwriters handled the IPO for your firm. The underwriting consisted of 1.5 million shares at an offer price of $13 a share. ABC did this on a best effort basis and charged a 7% underwriting fee. Your firm received a total of $11,751,480 as IPO proceeds. How many shares of the IPO offering were sold

Question

Quizplus · Accepted Answer

To find out how many shares were sold, we need to use the formula:

Net proceeds = Offer price per share x Number of shares sold x (1 - Underwriting fee)

We know net proceeds ($11,751,480), offer price per share ($13), and underwriting fee (7%) so we can rearrange the formula to solve for the number of shares:

Number of shares sold = Net proceeds / (Offer price per share x (1 - Underwriting fee))

Plugging in the values gives us:

Number of shares sold = $11,751,480 / ($13 x 0.93) 
Number of shares sold = $11,751,480 / $12.09
Number of shares sold ≈ 972,000 shares

Therefore, the best choice is D) 972,000 shares.

ABC Underwriters Handled the IPO for Your Firm