An Investment Banker Agrees to Underwrite an Issue of 5

question 12

Multiple Choice

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share.
-What is the profit (loss) to the investment banker?

• A)Profit of $7,500,000.
• B)Profit of $2,000,000.
• C)Profit of $7,000,000.
• D)Loss of $7,500,000.

---

Definitions:

Tax Subsidy

A government benefit that effectively reduces the tax that a business or individual owes.

Excise Tax

A tax imposed on specific goods, services, or transactions, typically including alcohol, tobacco, and fuel, aimed at raising government revenue or affecting consumption patterns.

Price Paid

The amount of money exchanged for a good or service in a transaction.

Consumers

Individuals or entities that use goods and services generated within the economy.