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Calculating Costs of Issuing Stock Video Games, Inc
Calculating Costs of Issuing Stock Video Games, Inc., with the help of its investment bank recently issued 10.17 million shares of new stock. The offer price on the stock was $48.35 per share and Video's received a total of $463,500,000 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 Video for underwriting the stock issue? (Round your intermediate calculations and final answer to 2 decimal places.)
Expert Solution
Computation of Net Proceeds and Underwriter's Spread on the Stock Offering:
Net Proceeds = Total Proceeds / Number of Shares
= $463,500,000/10,170,000
Net Proceeds = $45.58 per share
Gross Funds Received = $48.35 * 10,170,000 = $491,719,500
So,
Underwriter's Funds = $491,719,500 - $463,500,000 = $28,219,500
Underwriter's Spread = Underwriter's Funds /Number of Shares
= $28,219,500/10,170,000
Underwriter's Spread = $2.78
Computation of Percentage of the Gross Price the investment bank charging Video for underwriting the stock issue:
Investment Bank's Percentage of Gross = $2.78/$48.35 = 0.0575 or 5.75%
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