An investment bank agrees to underwrite an issue of 15 million shares of stock for Looney Landscaping
Question:
An investment bank agrees to underwrite an issue of 15 million shares of stock for Looney Landscaping Corp.
a. If the investment bank underwrites the stock on a firm commitment basis, it agrees to pay $12.50 per share to Looney Landscaping Corp. for the 15 million shares of stock. It can then sell those shares to the public for $13.25 per share. How much money does Looney Landscaping Corp. receive? What is the profit to the investment bank? If the investment bank can sell the shares for only $11.95, how much money does Looney Landscaping Corp. receive? What is the profit to the investment bank?
b. Suppose, instead, that the investment bank agrees to underwrite the 15 million shares on a best-efforts basis. The investment bank is able to sell 13.6 million shares for $12.50 per share, and it charges Looney Landscaping Corp. $0.275 per share sold. How much money does Looney Landscaping Corp. receive? What is the profit to the investment bank? If the investment bank can sell the shares for only $11.95, how much money does Looney Landscaping Corp. receive? What is the profit to the investment bank?
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Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
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