The Fitness Studio, Inc., with the help of its investment bank, recently issued

Question

The Fitness Studio, Inc., with the help of its investment bank, recently issued 2.8 million shares of new stock. The offer price on the stock was $25.50 per share and The Fitness Studio received a total of $67,830,000 through this stock offering.

Calculate the net proceeds per share and the underwriter's spread per share on the stock offering. (Round your answers to 3 decimal places.)

What percentage of the gross price is the investment bank charging The Fitness Studio for underwriting the stock issue?

The Fitness Studio, Inc., with the help of its investment bank, recently issued 2.8 million shares of new stock. The offer price on the stock was $25.50 per share and The Fitness Studio received a total of $67,830,000 through this stock offering.

Explanation / Answer

Part A

Net Proceeds per share = total proceeds/ shares issued

                                                = 67,830,000/ 2,800,000

                                                = 24.225

Underwriter’s spread per share = Offer price – Net proceed per share

                                                                = 25.50 – 24.225

                                                                = 1.275

Part B

Percent underwriting spread = Underwriter’s spread / Net Proceeds per share

                                                        = 1.275 / 25.50

                                                        = 5%

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