A company wants to raise $20 million. Its stock price is now $20 per share. The new issue will be priced at $18 per share. The underwriters' compensation will be 5 percent of the issue price. The firm will also incur expenses of $200,000.
1. How many shares of stock must be sold for the company to net $20 million after costs and expenses?
2. The out-of-pocket expenses incurred by the investment banker were $300,000. What profit or loss would the investment banker realize?
3. Explain the terms "best efforts basis" and "underwriting" as they are used in investment banking.
4. What is the most important single reason for a firm to go public.
5. What is the most important single reason for a firm NOT to go public
The problem deals with issues relating to shares.