Luther Industries is in the process of selling shares of stock in an auction IPO

Question

Luther Industries is in the process of selling shares of stock in an auction IPO. At
the end of the bidding period, Luther's investment bank has received the following bids.
What will the offer price of these shares be if Luther is selling 1 million shares?

Price $19.50 $19.25 S19.10 $19.00 $18.75 $18.50 $18.25 $18.00 $17.75 $17.50 $17.25 $17.00 S16.90 $16.75 $16.50 S16.25 Number of Shares Bid 50,000 25,000 25,000 100,000 125,000 75,000 150,000 240,000 80,000 125,000 150,000 100,000 60,000 80,000 75,000 200,000

Explanation / Answer

As the total number of shares is 1 Million, Luther will follow a Dutch Auction process until it gets the highest price from among the bidders who can all subscribe the 1 million shares

Luther will like to have the highest bidders price then in descending order will all 1 million shares are subscribed

When the price is at $ 17.50, 995 ,000 shares are issued. The last 5000 shares would be provided to the bidder who bid at Price $ 17.25. So final price of the shares = $ 17.25

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