Investment Bankers Association (IBA) has an agreement with Northern Airlines to underwrite an equity issue with a market value equal to $11 million.
a. If IBAâ€™s underwriting fee is 5 percent and its out-of-pocket expenses associated with the issue are $125,000, what is the net amount that IBA will receive under its agreement with Northern?
b. Assuming that the information in part (a) does not change and Northern incurs out-of-pocket expenses equal to $240,000 for items such as printing, legal fees, and so on, what will be the net proceeds from the equity issue for Northern?