An investment bank pays $33.90 per share for 4.4 million shares of GM Company in
ID: 2798485 • Letter: A
Question
An investment bank pays $33.90 per share for 4.4 million shares of GM Company in a firm commitment stock offering. It then can sell those shares to the public for $32 per share.
How much money does GM receive? (Enter your answer in dollars not in millions.)
What is the profit to the investment bank? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)
An investment bank pays $33.90 per share for 4.4 million shares of GM Company in a firm commitment stock offering. It then can sell those shares to the public for $32 per share.
Explanation / Answer
Amount that GM company pays = ($33.9 x 4,400,000) = $ 149,160,000
Amount that GM company receives = ($32 x 4,4000,000) = $ 140,800,000
The investment bank’s profit is = amount paid by GM - amount received by GM = $8,360,000
Stock price is $32 since that is what the public pays.
From the perspective of GM company, the $8,360,000 represents the commission that it must pay to issue the stock
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