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Chapter 5: Q8BP (page 495)

Assume Sybase Software is thinking about three different size offerings for issuance of additional shares.


Size of Offer
Public Price 		Net to Corporation
1.1 million…………… \(30 \)27.50
7.8 million…………… \(30 \)28.44
28.0 million……………
 \(30 \)29.15

What is the percentage underwriting spread for each size offer?

Short Answer

Expert verified

Percentage underwriting spread for offer:

  1. 8.33%
  2. 5.2%
  3. 2.83%

Step by step solution

01

Computation of percentage underwriting spread for offer a

Offer a.

Spread=Publicprice-Net tocorporation=$30-$27.50=$2.50Percentage spread=SpreadPublic price×100=$2.50$30×100=8.33%

02

Computation of percentage underwriting spread for offer b

Offer b.

Spread=Publicprice-Net tocorporation=$30-$28.44=$1.56Percentage spread=SpreadPublic price×100=$1.56$30×100=5.2%

03

Computation of percentage underwriting spread for offer c

Offer c.

Spread=Publicprice-Net tocorporation=$30-$29.15=$0.85Percentage spread=SpreadPublic price×100=$0.85$30×100=2.83%

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Most popular questions from this chapter

Midland Corporation has a net income of \(19 million and 4 million shares outstanding. Its common stock is currently selling for \)48 per share. Midland plans to sell common stock to set up a major new production facility with a net cost of \(21,120,000. The production facility will not produce a profit for one year, and then it is expected to earn a 13 percent return on the investment. Stanley Morgan and Co., an investment banking firm, plans to sell the issue to the public for \)44 per share with a spread of 4 percent.

c. What are the earnings per share (EPS) and the price-earnings ratio before the issue (based on a stock price of $48)? What will be the price per share immediately after the sale of stock if the P/E stays constant?

The Pioneer Petroleum Corporation has a bond outstanding with an \(85 annual interest payment, a market price of \)800, and a maturity date in five years. Find the following:

a. The coupon rate.

b. The current rate.

c. The yield to maturity

Explain how the bond refunding problem is similar to a capital budgeting decision. (LO16-3)

What are three forms of corporate securities discussed in the chapter?

Tyson Iron Works is about to go public. It currently has after-tax earnings of \(4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at \)25 per share with a 3 percent spread on the offering price. There will also be $280,000 in out-of-pocket costs to the corporation.

a. Compute the net proceeds to Tyson Iron Works.
See all solutions

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