I want to check my logic. Based on my calculations the underwriter would loss money. But that makes no sense.
(See attached file for full problem description)
If a corp 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% of the issue price. The firm will also incur expenses of $200,000. The out-of -pocket expenses for the underwriter are $300,000.
How many shares of stock must be sold for the company to net $20 million after costs and expenses?
Stock price $20
Common stock req $20,000,000
Public share price $18.00
Underwriter's comp 5% $55,556
Net per share $19.00
Desired net $20,000,000
Number of shares 1,063,158
What profit or loss would the investment banker realize?
There are 2 corrections. You have taken $20 as the issue price to calculate the number of ...
The solution explains how to calculate the net proceeds of a stock issue given the underwriting expenses and other expenses
Traditional vs. Auction-Style Initial Public Offerings are illustrated via case study of Skype and Morningstar IPO execution.
Initial public offerings are mature company's entry into public ownership and allow access to shareholder equity. They have traditionally been dominated by investment brokers, but a few recent examples show this is not the only method that can be successful. Do "new" e-commerce enterprises benefit from an auction-style IPO? Or should the tried and true method of investment brokers be retained?
What type of IPO should E-Bay use to take Skype public - a traditional IPO or an online auction?
Some issues to consider:
A. The type of investors Skype likely to attract
B. The lessons learned from Google and Morningstar from their auction IPOs
C. Costs and risks of each type of IPO