Calculating Costs of Issuing Stock Video Games, Inc., with the help of its inves

Question

Calculating Costs of Issuing Stock Video Games, Inc., with the help of its investment bank recently issued 10.01 million shares of new stock. The offer price on the stock was $47.55 per share and Video's received a total of $447,500,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Video for underwriting the stock issue? (Round your intermediate calculations and final answer to 2 decimal places.)

Explanation / Answer

Net proceeds=$447.5 million

Net proceeds per share=447.5/10.01=$44.70529 per share

Gross Proceeds=10.01*47.55=$475.9755 million

Underwriter's funds=475.9755-447.5=$28.4755 million

Underwriter's spread=28.4755/10.01=2.844705

% of gross=2.844705/47.55=0.059826=5.9826%

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