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Stock issue

Invester banker 5 enters into a best efforts arrangement to try and sell 10 million shares of stock at $15.00 per share for Rogers Company. The investment banker 5 incurs expenses of $300,000 in floating the issue and the company incurs expenses of $100,000. The investment banker 5 will receive 10% of the proceeds of the offering.

Please do a step-by step (equation) process for each problem for learning purposes.

If the offering is successful and sells out at the expected price of $15.00, how much money will the company receive?

If the offering is successful and sells out at the expected price of $15.00, how much money will the investment banker 5 receive?

If the offering is partially successful; all shares are sold, but at a price of $10.00. How much does the company recieve?

If the offering is partially successful; all shares are sold, but at a share price of $10.00. How much does the investment banker 5 receive?

Who bears more risk with a best efforts deal, the company or the investment banker 5? Why?

Solution Preview

If the offering is successful and sells out at the expected price of $15.00, how much money will the company receive?

The total issue is for 10 million shares. At a price of $15 per share, the total amount collected us 10X15=$150 million. Of this the investment banker will get 10% which is 150X10%=$15 million and the company incurs an expense of $0.1 million ($100,000)
The amount company would receive = Total amount - fee for investment banker - issue expenses
Total amount received by the company = 150-15-0.1 = $134.9 ...

Solution Summary

The solution explains the proceeds to the investment banker and the company of a new stock issue under different situations.

$2.19