Purchase Solution

# 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?

##### 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 ...

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