On January 20, Sullivan Inc., sold 10 million shares of stock in an SEO. The mar

Question

On January 20, Sullivan Inc., sold 10 million shares of stock in an SEO. The market price of Sullivan at the time was $42.00 per share. Of the 10 million shares sold, 5 million shares were primary shares being sold by the company, and the remaining 5 million shares were being sold by the venture capital investors. Assume the underwriter charges 4.8% of the gross proceeds as an underwriting fee. a. How much money did Sullivan raise? b. How much money did the venture capitalists receive? C. If the stock pnce dropped 2.1% on the announcement of the SEO and the new shares were sold at that price, how much money would Sullivan receive?

Explanation / Answer

a) Sullivan raised a total amount of = number of shares * share price

= 10,000,000 + 42 = 420,000,000

b) 5million shares were sold by venture capitalists.

Amount raised by them for Sullivan = 5000000 * 42 = 210,000,000

Underwriter charges = .048 * 21000000 = $10,080,000

c) New stock price = 42 - 42*.021 = $ 41.12

Money received = 41.12 * 10,000,000 = $ 41,120,000

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