Sipe's Paint and Wallpaper, Inc

question 82

Multiple Choice

Sipe's Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $37.20 per share and that 48,500 shares of stock be sold. If the net proceeds on the stock sale leaves Sipe's Paint and Wallpaper with $1.25 million, calculate the underwriter's spread per share on the stock issue.

• A) $11.43
• B) $9.28
• C) $7.14
• D) $6.91

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Definitions:

Net Operating Income

This is a company's income after all operating expenses, excluding financial expenses and taxes, have been deducted from total revenue.

Operating Leverage

The degree to which a company's net income can be affected by a change in sales, influenced by the proportion of fixed costs in a company's cost structure.

Salesvolume

The total amount of a product sold within a specific period.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, highlighting the impact of fixed costs.