Tuttle Buildings Inc

question 17

Multiple Choice

Tuttle Buildings Inc. has decided to go public by selling $5,000,000 of new common stock. Its investment bankers agreed to take a smaller fee now (6% of gross proceeds versus their normal 10%) in exchange for a
1-year option to purchase an additional 200,000 shares at $5.00 per share. The investment bankers expect to exercise the option and purchase the 200,000 shares in exactly one year, when the stock price is forecasted to be $6.50 per share. However, there is a chance that the stock price will actually be $12.00 per share one year from now. If the $12 price occurs, what would the present value of the entire underwriting compensation be? Assume that the investment banker's required return on such arrangements is 15%, and ignore taxes.

• A) $1,235,925
• B) $1,300,973
• C) $1,369,446
• D) $1,441,522
• E) $1,517,391

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Definitions:

Directive Actions

Specific measures or steps taken to guide or instruct towards achieving a particular goal or objective.

Work Environment

The physical and psychological conditions under which employees operate, including the workplace culture, physical space, and resources available.

Leader Personality

The specific traits and characteristics that contribute to an individual's effectiveness and style as a leader.

Charisma

A compelling attractiveness or charm that can inspire devotion in others, often seen as a unique personal quality that enables an individual to influence or motivate people.