Log out Go to App
Go to App

Learning Materials

Features

Discover

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%

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is the difference between the following yields: coupon rate, current yield, and yield to maturity? (LO16-2)

Becker Brothers is the managing underwriter for a 1.45-millon-share issue by Jay’s Hamburger Heaven. Becker Brothers is “handling” 10 percent of the issue. Its price is \(27 per share, and the price to the public is \)28.95.

Becker also provides the market stabilization function. During the issuance, the market for the stock turns soft, and Becker is forced to purchase 50,000 shares in the open market at an average price of \(27.50. It later sells the shares at an average value of \)27.20.

Compute Becker Brother’s overall gain or loss from managing the issue.

Kevin’s Bacon Company Inc. has earnings of \(9 million with 2,100,000 shares outstanding before a public distribution. Seven hundred thousand shares will be included in the sale, of which 400,000 are new corporate shares, and 300,000 are shares currently owned by Ann Fry, the founder and CEO. The 300,000 shares that Ann is selling are referred to as a secondary offering, and all proceeds will go to her.

The net price from the offering will be \)16.50, and the corporate proceeds are expected to produce $1.8 million in corporate earnings.

a. What were the corporation’s earnings per share before the offering?

b. What are the corporation’s earnings per share expected to be after the offering?

Solar Energy Corp. has $4million in earnings with 4 million shares outstanding. Investment bankers think the stock can justify P/E ratio of 21. Assume the underwriting spread is 5 percent. What should the price to the public be?

Using the information in Problem 3, assume that American Health Systems’ 1,700,000 additional share can only be issued at $18 per share.

a. Assume that American Health Systems can earn 6 percent on the proceeds. Calculate earnings per share.

b. Should the new issue be undertaken based on earnings per share?
See all solutions

Recommended explanations on Business Studies Textbooks

Financial Performance

Read Explanation

Managerial Economics

Read Explanation

Business Development

Read Explanation

Business Case Studies

Read Explanation

Business Operations

Read Explanation

Managers

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free