Question

How much will a firm receive in net funding from a firm commitment underwriting of 250,000 shares priced to the public at $40 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally, the firm pays $600,000 in legal fees.

Answer 1

The firm receive in net funding = $8,490,000

Step-by-step explanation:

The Share's Offer to the public = $40 per Share

The Final Cost to the Firm or Issuer = $40 × 110 / 100

The Final Cost to the Firm or Issuer = $40 × 1.10

The Final Cost to the Firm or Issuer = $36.36 Per Share

The firm commitment underwriting of Shares = 250,000

The Amount of Share's issued by the firm = 250,000 × 36.36

The Amount of Share's issued by the firm = $9,090,000

The firm receive in net funding = Amount of Share - Legal Fees

The firm receive in net funding = $9,090,000 - $600,000

The firm receive in net funding = $8,490,000

Answer 2

The firm will recieve $8,490,000 in net funding.

Step-by-step explanation:

The cost per share to public is $40.00 per share

The Net Cost to the issuer [$40 per share / 1.10] , so the amount is $36.36 per share

We then know that the Number of shares issued is 250,000 Shares so,

Total amount of shares issued [250,000 Shares x $36.36 per share] =$9,090,000

The firm pays $600,000 in legal fees, so $9,090,000 -$600,000 would be = $8,490,000 which would be the amount that the firm will receive.