Calculating Costs of Issuing Stock Volleyball Gear, Inc., with the help of its i

Question

Calculating Costs of Issuing Stock Volleyball Gear, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $18.50 per share and Volleyball Gear received a total of $26,917,500 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 Volleyball Gear for underwriting the stock issue? 9 percent, 3 percent, 4.5 percent, 6 percent

Explanation / Answer

Gross Proceeds = Number of shares issued * issue price

                      = 1,500,000 * 18.50

                      = $ 27,750,000

Underwriter spread = Gross proceeds - net proceeds

,        = 27,750,000 - 26,917,500

         = 832,500

percentage of the gross price is the investment bank charging Volleyball Gear for underwriting the stock issue= underwriter spreas /gross issue

             = 832500 / 27,750,000

           = .03 or 3%

correct option is "B"

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