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    Underwriting Costs for Winston Sporting Goods

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    Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the compnay that the retail price will be $18 per share for 600,000 shares. The company will receive $16.50 per share and will incur $150,000 in registration, accounting and printing fees.

    a.) What is the spread on this issue in percentage terms? What are the total expenses of the issue as a percentage of total value(at retail)?

    b.) If the firm wanted to net $18 million from this issue, how many shares must be sold?

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    Solution Preview

    a. The spread is the difference between the issue price and the amount received by the issuer. In this case, Winston will receive $16.50 while the issue price is $18.
    The spread = 18-16.50=$1.50
    In terms of percentage, the spread = 1.50/18.00 = 8.33%
    Total ...