IPO: Fortune Hotels issues an IPO sold on a best-efforts basis. The company's investment bank demands a spread of 20 percent. Five million shares are issued. However, the bank was overly optimistic and could not sell at the offer price of $31. If the net proceeds to the issuer were $110 million, what was the per share price at which the shares were sold?

Question

Quizplus · Accepted Answer

Net proceeds = Gross proceeds - Spread$110 million = Gross proceeds - 20% of Gross proceeds$110 million = 0.80 * Gross proceedsGross proceeds = $110 million / 0.80 = $137.5 millionPer share price = Gross proceeds / Number of sharesPer share price = $137.5 million / 5 million shares = $27.50

IPO: Fortune Hotels Issues an IPO Sold on a Best-Efforts