Suppose ReapingTheBenefits Co. (RTB Co.) is one of the largest investment bankin

Question

Suppose ReapingTheBenefits Co. (RTB Co.) is one of the largest investment banking firms on Wall Street. VisionStone Corp. hired RTB Co. as the underwriter for its IPO. RTB Co. has set the offering price of the share to $40 per share. The underwriters will charge a 4.4% spread. How many shares must the company sell to net $87 million, ignoring any other expenses? O 3.19 million shares 2.28 million shares O 2.74 million shares O 2.18 million shares Consider the case of LinkedIn Corp. In May 2011, LinkedIn issued its IPO, which was priced at $45 a share. On the first day of trading, it hit a high of $122.70. After six months of its IPO, the company's stock was trading at double the price of its IPO. There are several theories that explain IPO underpricing. One of them is that underpricing likelihood of oversubscription, which the the risk to the underwriter.

Explanation / Answer

1) Number of shares to be sold to raise $87 million = 87/(40*95.6%) = 2.28 Million shares 2) increases/decreases.

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