Calculating Costs of Issuing Stock Amy's Accessories,Inc.,needs to raise $10 million to finance plant expansion.In discussions with its investment bank,Amy's Accessories learns that the bankers recommend an offer price (or gross proceeds)of $25 per share and Amy's Accessories will receive $23 per share.What is the underwriter's spread on the issue?
A)$0
B)$2
C)$23
D)$25

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the offer price (gross proceeds) and the amount the company receives per share. In this case, the offer price is $25 per share and Amy's Accessories will receive $23 per share. Therefore, the underwriter's spread is $25 - $23 = $2. Option B is the correct answer. Option A is incorrect because there is a spread. Option C is incorrect because $23 is the amount Amy's Accessories receives per share, not the underwriter's spread. Option D is incorrect because $25 is the offer price, not the underwriter's spread.