Use the Following Information to Answer the Question(s)below

question 21

Multiple Choice

Use the following information to answer the question(s) below.
Wyatt Oil has 8 million shares outstanding and is about to issue 10 million new shares in an IPO.The IPO price has been set at $15 per share,and the underwriting spread is 6%.The IPO is a big success with investors,and the share price rises to $35 on the first day of trading.
-The total cost to the firm's original investors due to the market imperfections from the IPO is closest to:

• A)$141 million.
• B)$210 million.
• C)$280 million.
• D)$489 million.

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Definitions:

Tax Shield

A reduction in taxable income for individuals or corporations achieved through claiming allowable deductions.

Tax Rate

The percentage at which an individual or corporation is taxed. The government sets the rate, which can apply to income, capital gains, or other financial figures.

Straight-Line Depreciation

A procedure for assigning the cost of a solid asset over its productive lifetime in equal annual figures.

Marginal Tax Rates

The rate at which an individual or corporation's next dollar of taxable income is taxed.