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Dilution Effect of Stock Issue

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Assume Safeguard Detective Company is thinking about three different size offerings for the issuance of additional shares.

Size of offer Public Price Net to Corporation
a. $1.5 million $50 $46.10
b. $5.5 million $50 $46.80
c. $20.0 million $50 $48.15

What is the percentage underwriting spread for each size offer?

What principle does this demonstrate?

Hint: Use the spread formula. So, public price - net to corp. = X then divide by public price to get percentage spread.

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This explains the Dilution effect of stock issue.

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Assume Safeguard Detective Company is thinking about three different size offerings for the issuance of additional shares.

Size of ...

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