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    Shares and Offerings

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    Refer to Marvin Prospectus Appendix

    a) If there is unexpectedly heavy demand for this issue, how many extra shares can the underwriter buy?
    b) How many shares are to be sold in the primary offering? How many will be sold in the secondary offering?
    c) One day post-ISO, Marvin shares trades at $105. What was the degree of underpricing? How does that compare with the average degree of underpricing for IPOs in the United States?
    d) There are three kinds of cost to Marvin's new issue- underwriting expense, administrative costs, and underpricing. What was the total dollar cost of the Marvin issue?

    Please show how to calculate this.

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    Solution Preview

    Please see the attached file for the solution.

    Solutions:
    a.) 135,000 shares

    b.) primary: 500,000 shares --- company
    secondary : 400,000 shares ---selling stockholders

    c.) ...

    Solution Summary

    This solution shows how to calculate the possible number of shares the underwriter can purchase, how many can be sold in the primary and secondary offerings, the degree of underpricing of the stocks, and the total dollar cost of the issue, in reference to the Marvin Prospectus Appendix.

    $2.19