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Beedles Inc
Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $320,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answers to the nearest dollar. Loss should be indicated by a minus sign.
a. $5.25 per share?
b. $6.25 per share?
c. $4.25 per share?
Expert Solution
Computation of the profit or loss:-
a). Profit or loss = (Number of shares * Price) - Proceeds to Beedles - Out of pocket expenses
= (3,000,000 * $5.25) - $14,000,000 - $320,000
= $15,750,000 - $14,000,000 - $320,000
= $1,430,000
If the issue price is $5.25 then the profit = $1,430,000
b). Profit or loss = (3,000,000 * $6.25) - $14,000,000 - $320,000
= $18,750,000 - $14,000,000 - $320,000
= $4,430,000
If the issue price is $6.25 then the profit = $4,430,000
c). Profit or loss = (3,000,000 * $4.25) - $14,000,000 - $320,000
= $12,750,000 - $14,000,000 - $320,000
= -$1,570,000
If the issue price is $4.25 then the loss = -$1,570,000
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