Assume the Issuer Incurs $1 Million in Other Expenses to Sell

question 48

Multiple Choice

Assume the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the underwriter sells the shares at $43 each.By the end of the first day's trading, the issuing company's stock price had risen to $70.What is the cost of underpricing?

• A)81 million
• B)91 million
• C)101 million
• D)111 million underwriting spread: 3 million x $3 = $9 million

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Definitions:

Standard Quantity Of Hours

The standard quantity of hours refers to the pre-determined amount of labor hours estimated to be necessary to produce a single unit of output.

Standard Cost Per Mip

The predetermined cost of manufacturing one unit of product, where Mip is typically a measure of output.

Direct Labour Efficiency Variance

A measure used in cost accounting to determine the difference between the labor time expected to produce goods and the actual labor time used.

Standard Price

The predetermined cost expected to be paid for goods and services under normal conditions.