Calculating Costs of Issuing Stock Polly's Ponies,Inc.,with the help of its investment bank recently issued 7.5 million shares of new stock.The offer price on the stock was $15.00 per share and Polly's Ponies received a total of $105.75 million from the stock offering.Calculate the net proceeds and the underwriter's spread charged by the underwriter to Polly's Ponies.What percentage of the gross proceeds is the investment bank charging Polly's Ponies for underwriting the stock issue?
A)3 percent
B)6 percent
C)9 percent
D)94 percent

Question

Quizplus · Accepted Answer

The gross proceeds from the stock offering are 7.5 million shares * $15.00 = $112.5 million. The net proceeds received by Polly's Ponies are $105.75 million. The underwriter's spread is $112.5 million - $105.75 million = $6.75 million. The percentage charged by the investment bank is ($6.75 million / $112.5 million) * 100% = 6 percent.