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Raising Capital Via Stock Issue With Underwriting

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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)

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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?
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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

\$2.19
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