Calculating Costs of Issuing Stock Paige's Purses,Inc.,needs to raise $25 million to finance plant expansion.In discussions with its investment bank,Paige's Purses learns that the bankers recommend an offer price (or gross proceeds)of $50 per share and Paige's Purses will receive $45 per share.What is the underwriter's spread on the issue?
A)$5
B)$45
C)$50
D)$0

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the offer price (or gross proceeds) and the amount that the company receives per share. In this case, the offer price is $50 per share and Paige's Purses will receive $45 per share. Therefore, the underwriter's spread is $5 per share, which is the difference between the two prices. So, the best choice is A, $5.