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Underwriting Costs for Winston Sporting Goods

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 ...