Firm commitment versus best efforts. Astro Investment Bank offers Lunar Vacations the following options on its initial public sale of equity: (a) a best efforts arrangement whereby Astro will keep 2.7% of the retail sales or (b) a firm commitment arrangement of $10,100,000. Lunar plans on offering 1,000,000 shares at $11.84 per share to the public. If it sells 100% of the shares, which is the better choice for Lunar Vacations? Which is the better choice for Astro Investment Bank?
Firm commitment versus best efforts. Astro Investment Bank offers Lunar Vacations the following options on its initial public sale of equity: (a) a best efforts arrangement whereby Astro will keep 2.7% of the retail sales or (b) a firm commitment arrangement of $10,100,000. Lunar plans on offering 1,000,000 shares at $11.84 per share to the public. If it sells 100% of the shares, which is the better choice for Lunar Vacations? Which is the better choice for Astro Investment Bank?
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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Firm commitment versus best efforts. Astro Investment Bank offers Lunar Vacations the following options on its initial public sale of equity: (a) a best efforts
arrangement whereby Astro wilIl keep 2.8% of the retail sales or (b) a firm commitment arrangement of $9,800,000. Lunar plans on offering 1,000,000 shares at
$12.03 per share to the public. If it sells 100% of the shares, which is the better choice for Lunar Vacations? Which is the better choice for Astro Investment Bank?
Under the best efforts arrangement, what are the proceeds for Lunar Vacations?
$ 11,693,160 (Round to the nearest dollar.)
Under the firm commitment arrangement, what are the proceeds for Lunar Vacations?
$ 9,800,000 (Round to the nearest dollar.)
The best choice for Lunar Vacations is the best efforts
arrangement. (Select from the drop-down menu.)
Under the best efforts arrangement, what are the proceeds for Astro Investment Bank?
$ 336.840 (Round to the nearest dollar.)
Under the firm commitment arrangement, what are the proceeds for Astro Investment Bank?
$ 2,230,000 (Round to the nearest dollar.)
The best choice for Astro Investment Bank is the firm commitment arrangement. (Select from the drop-down menu.)
Transcribed Image Text:Firm commitment versus best efforts. Astro Investment Bank offers Lunar Vacations the following options on its initial public sale of equity: (a) a best efforts
arrangement whereby Astro will keep 2.7% of the retail sales or (b) a firm commitment arrangement of $10,100,000. Lunar plans on offering 1,000,000 shares at
$11.84 per share to the public. If it sells 100% of the shares, which is the better choice for Lunar Vacations? Which is the better choice for Astro Investment Bank?
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