Calculating Costs of Issuing Stock Volleyball Gear,Inc.,with the help of its investment bank recently issued 1.5 million shares of new stock.The offer price on the stock was $18.50 per share and Volleyball Gear received a total of $26,917,500 through this stock offering.Calculate the net proceeds and the underwriter's spread on the stock offering.What percentage of the gross price is the investment bank charging Volleyball Gear for underwriting the stock issue?
A)3 percent
B)4.5 percent
C)6 percent
D)9 percent

Question

Quizplus · Accepted Answer

The underwriter's spread is the difference between the gross proceeds and the net proceeds. In this case, the gross proceeds are $26,917,500 and the net proceeds are $25,500,000. Therefore, the underwriter's spread is $1,417,500. The underwriter's spread as a percentage of the gross price is $1,417,500/$26,917,500 * 100 = 5.27%. The closest answer choice is 4.5%, which is choice B.