The Wriglwy COmpany needs to raise 21 million The investment banking firm of Tin

Question

The Wriglwy COmpany needs to raise 21 million The investment banking firm of Tinker Evers and Chance will handle transaction.

a= If stock is utilized 2,100,000 shares will be sold to the public for $11 per share The corp will recieve $10 per share

What is the % underwriting spread per share

b=If bonds are utilized slightly over 21,000 bonds will  be sold to the public for 1,007 per bond Corporation will recieve $998 per bond What is the percentage of underwriting spread per bond

c=WHich alternative has the largest % of spread

c2= Is this the normal relationship between the two types of issues?

Explanation / Answer

a. Spread = $11.00 -$10.00 = $1.00 %

underwriting spread = $1.00/$11.00 = 9.09%

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b. Spread = $1,007 -$998 = $9 %

underwriting spread = $9/$1,007 = .893%

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c. The stock alternative has the larger percentage spread.

This is normal because there is more uncertainty in the market associated with a stock offering and investment bankers want to be appropriately compensated.

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