Sea Grove Beach Corporation Is Executing an Initial Public Offering

Sea Grove Beach Corporation is executing an initial public offering with the following characteristics. The company will sell 12 million shares at an offer price of $20 per share, the underwriter will charge a 7 percent underwriting fee, and the shares are expected to sell for $27.50 per share by the end of the first day's trading. Assuming this IPO is executed as expected.
-Montigo Magic Petroleum Corporation is interested in selling common stock to raise capital for a new oil well.The firm has contacted First Bank of Manhattan,a large underwriting firm,which believes that the stock can be sold for $40 per share.The underwriter also believes,after careful research,that its administrative costs will be 2.75 percent of the sale price and its selling costs will be 2.40 percent of the sale price.If the underwriter requires a profit equal to 1.25 percent of the sale price,how much will the spread have to be in dollars to cover the underwriter's costs and profit?

A) $0.64
B) $1.80
C) $2.16
D) $2.56