Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?
A) $17,500,000
B) $17,050,000
C) $17,075,000
D) $16,175,000

Question

Quizplus · Accepted Answer

700,000 shares
$25.00 public price
$17,500,000 total cash inflow
450,000 out-of-pocket costs
$17,050,000 cash before underwriting fees
875,000 underwriting fees to investment banker (17,500,000 total cash inflow × .05 spread)
$16,175,000 cash left for firm
Please note that the out-of-pocket costs are in addition to the spread.

Raybac Is About to Go Public