Basic Buildings Inc. decided to go public with a $5,000,000 new equity issue at the beginning of January 1999. Its investment bankers agreed to take a smaller fee now (4 percent of the proceeds) in addition to a 1-year option to purchase an additional 200,000 shares of the company at $5.00 per share. The investment-banking firm expects to exercise its option and purchase the 200,000 shares in exactly one year's time when the stock price is expected to be $13.50 per share. What is the value of the option to the investment banker?

Question 14 options:

	$1.7 million
	$1 million
	$2.4 million
	$1.4 million

Question 15 (1 point)

Basic Buildings Inc. decided to go public with a $5,000,000 new equity issue at the beginning of January 1999. Its investment bankers agreed to take a smaller fee now (4 percent of the proceeds) in addition to a 1-year option to purchase an additional 200,000 shares of the company at $5.00 per share. The investment-banking firm expects to exercise its option and purchase the 200,000 shares in exactly one year's time when the stock price is expected to be $13.50 per share. What is the present value of the entire underwriting agreement to the investment banker? Assume that the investment banker's required return on such arrangements is 12 percent and ignore any tax considerations.

Question 15 options:

	$1.98 million
	$1.62 million
	$1.55 million
	$1.72 million