How Does the Size of an Issue Affect the Fees

question 73

Multiple Choice

How does the size of an issue affect the fees charged by underwriters?

• A)Large issues generally have a similar spread to small issues and thus attract much greater fees.
• B)Large issues have substantially larger direct costs and, thus, must charge a larger spread in order to be profitable for the underwriter.
• C)Large issues have a reduced spread, which means that the total fees are generally the same as for smaller issues.
• D)Although large issues generally have a smaller spread, the large number of shares released means that the total fees are somewhat larger than for smaller issues.

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Definitions:

Activity-Based Costing

An accounting method that assigns costs to products based on the activities they require, such as ordering materials or setting up machinery.

Product Costs

Encompasses all costs incurred to create a product, including direct materials, direct labor, and manufacturing overhead.

Direct Labor

The expenses related to the salaries of workers who are actively engaged in creating products or providing services.

Direct Materials

Raw materials that are directly involved in the production of a product and can be easily traced to it.