Owners of the Internet bargain site FROOGLE.com have decided to takte their comp

Question

Owners of the Internet bargain site FROOGLE.com have decided to takte their company public by conducting an initial public offering of common stock. They have agreed with their investment banker to sell 3.3 million shares to investors at an offer price of $14 per share. The underwriting spread is 7 percent.
a. what is the net price that Froogle.com will receive for its shares?
b. How much money will froogle.com raise in the offering?
c. How much do FROOGLE.com's investment bankers make on this transaction?

Explanation / Answer

Note:-

An underwriter's gross profit is equal to the "spread;" that is; to the difference between the prices the underwriter pays for the bonds and the sale price

a)

The net price that Froogle.com will receive for its shares

3.3million shares * $14 = $46.2 million

On $46.2 million we subtract spread amount that is $3.23million ($46.2 million * 7%)

= $46.2 million – $3.23 million

= $42.97

net price that Froogle.com will receive = $42.97 million

b)

froogle.com raise in the offering is

3.3million shares * $14 = $46.2 million

c)

investment bankers make on this transaction is

Underwriter’s gross profit is equal to the "spread;"

So $3.23million ($46.2 million * 7%)

Investment bankers make on this transaction is = $3.23million

Note:-

It is not much important I am just trying to explain you…..

As per your requirement you can inter change question a and b methodology

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