A company wants to raise $540 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 8 percent underpricing and a 7 percent spread. (Hint: the underpricing is 8 percent of the current stock price, and the spread is 7 percent of the issue price.) a. Assuming the company's stock price does not change from its current price of $79 per share, what would be the issue price to the public after underpricing? How many shares would the company need to sell? Note: Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places. Enter "Number of shares" answer in millions. Answer is complete and correct. 72.68 7.99 Issue price Number of shares million b. How much money will the investment banking syndicate earn on the sale? Note: Round Intermediate calculations to 2 decimal places. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely correct. 40.65 million Investment bankens revenue

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Qd 143.

A company wants to raise $540 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 8
percent underpricing and a 7 percent spread. (Hint: the underpricing is 8 percent of the current stock price, and the spread is 7
percent of the issue price.)
a. Assuming the company's stock price does not change from its current price of $79 per share, what would be the issue price to the
public after underpricing? How many shares would the company need to sell?
Note: Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places. Enter "Number of shares"
answer in millions.
Answer is complete and correct.
Issue price
Number of shares
72.68
7.99 million
b. How much money will the investment banking syndicate earn on the sale?
Note: Round intermediate calculations to 2 decimal places. Enter your answer in millions rounded to 2 decimal places.
Answer is complete but not entirely correct.
S 40.65 million
Investment bankens revenue
Transcribed Image Text:A company wants to raise $540 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 8 percent underpricing and a 7 percent spread. (Hint: the underpricing is 8 percent of the current stock price, and the spread is 7 percent of the issue price.) a. Assuming the company's stock price does not change from its current price of $79 per share, what would be the issue price to the public after underpricing? How many shares would the company need to sell? Note: Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places. Enter "Number of shares" answer in millions. Answer is complete and correct. Issue price Number of shares 72.68 7.99 million b. How much money will the investment banking syndicate earn on the sale? Note: Round intermediate calculations to 2 decimal places. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely correct. S 40.65 million Investment bankens revenue
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