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Raising Capital Via Stock Issue With Underwriting

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
Expenses $200,000
Desired net $20,000,000
Number of shares 1,063,158

What profit or loss would the investment banker realize?


Solution Preview

There are 2 corrections. You have taken $20 as the issue price to calculate the number of ...

Solution Summary

The solution explains how to calculate the net proceeds of a stock issue given the underwriting expenses and other expenses