Answered: You are negotiating with your…

Advanced Engineering Mathematics

10th Edition

ISBN:9780470458365

Author:Erwin Kreyszig

Publisher:Erwin Kreyszig

Chapter2: Second-order Linear Odes

Section: Chapter Questions

Problem 1RQ

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Question

You are negotiating with your underwriters in a firm commitment offering of 10 million primary shares. You have two options: set the IPO price at $23.00 per share with a spread of 6%, or set the price at $22.50 per share with a spread of 3%. Which option raises more money for your firm

a. The net price to the firm of the first option is (Round to the nearest cent.)

b. The net price to the firm of the second option is (Round to the nearest cent.)

Expert Solution

Step 1

$O p t i o n 1 : I P O p r i c e = $ 23 p e r s h a r e S p r e a d = 6 % T h e n e t p r i c e t o t h e f i r m o f t h e f i r s t o p t i o n = I P O p r i c e \times (1 - S p r e a d) T h e n e t p r i c e t o t h e f i r m o f t h e f i r s t o p t i o n = 23 \times (1 - 0.06) T h e n e t p r i c e t o t h e f i r m o f t h e f i r s t o p t i o n = $ 21.62$