Use the Table for the Question(s)below

question 90

Multiple Choice

Use the table for the question(s) below.
David founds a company and goes through the investment rounds shown below:
He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0.
-An IPO is offered at $14 per share for 6 million shares.The IPO underwriters had a spread of 7.5%.What proceeds did the firm receive from the IPO?

• A)$6.3 million
• B)$90.3 million
• C)$84 million
• D)$77.7 million
• E)$75 million

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Definitions:

Economic Profits

Earnings that exceed the total costs of production, including both explicit and implicit costs, indicating an above-normal return on investment.

Demand Curve

A visual representation that maps out the correlation between the price level of a good and how much of it consumers are willing to purchase.

Collusion

A secret or illegal cooperation or conspiracy, especially between businesses to limit competition and raise prices.

Marginal Cost

The financial outlay involved in producing a supplementary unit of a good or service.