Sea Grove Beach Corporation Is Executing an Initial Public Offering

question 37

Multiple Choice

Sea Grove Beach Corporation is executing an initial public offering with the following characteristics. The company will sell 12 million shares at an offer price of $20 per share, the underwriter will charge a 7 percent underwriting fee, and the shares are expected to sell for $27.50 per share by the end of the first day's trading. Assuming this IPO is executed as expected.
-Montigo Magic Petroleum Corporation is interested in selling common stock to raise capital for a new oil well.The firm has contacted First Bank of Manhattan,a large underwriting firm,which believes that the stock can be sold for $40 per share.The underwriter also believes,after careful research,that its administrative costs will be 2.75 percent of the sale price and its selling costs will be 2.40 percent of the sale price.If the underwriter requires a profit equal to 1.25 percent of the sale price,how much will the spread have to be in dollars to cover the underwriter's costs and profit?

• A) $0.64
• B) $1.80
• C) $2.16
• D) $2.56

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Definitions:

Self-Esteem

An individual's subjective evaluation of their own worth or value.

Transactional Leadership

A leadership style focused on the supervision, organization, and performance; transactional leaders use rewards and punishments to motivate employees.

Self- Interest

The consideration of one's own advantage or well-being as the primary goal of actions and decisions.

Active Management

The approach of portfolio management that involves actively buying and selling stocks and other assets to outperform a specific benchmark.