A company is planning an IPO of 20 million shares. Each share is expected to sel

Question

A company is planning an IPO of 20 million shares. Each share is expected to sell at $12 per share.    The investment banker will charge a 7% spread and incur expenses of $5 million.   How much will the company receive if all shares sell at the expected price? $240,000,000 $235,000,000 $223,200,000 $218,200,000 A company is planning an IPO of 20 million shares. Each share is expected to sell at $12 per share.    The investment banker will charge a 7% spread and incur expenses of $5 million.   How much will the company receive if all shares sell at the expected price?

Explanation / Answer

Gross spread is the difference between the underwriting price received by the issuing company and actual price offered to the investing public.Gross spread is the compensation that the underwriters of IPO make to cover expense,management fees,Commission and risk. Gross spread = Actual price offered to the investing public * spread % = $12 per share * 7% = $0.84 per share The amount company will receive if all shares sell at the expected price = No.of shares offered * (Actual price offered per share - Gross Spread per share) The amount company will receive if all shares sell at the expected price = 20 million shares * ($12 - $0.84) = $223,200,000

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