A Firm Is Making an Initial Public Offering

question 11

Multiple Choice

A firm is making an initial public offering. The investment bankers agree to a firm underwriting commitment of 500,000 shares priced to the public at $50 a share. The underwriter's spread is 12%. In addition, the underwriter charges $600,000 in legal fees. On the first day of trading, the firm's stock closed at $61. What were the total costs of the issue?

• A) $3,000,000
• B) $3,600,000
• C) $8,500,000
• D) $9,100,000

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Definitions:

Constructive Trust

A legal remedy imposed by a court to prevent unjust enrichment by transferring property from the person who unjustly benefits to the rightful owner.

Settlor

The individual who creates a trust by legally transferring assets into it, setting the terms for its management and distribution.

Revoke

To take back or withdraw an offer, right, or privilege.

Resulting Trust

A trust implied by law when property is transferred under circumstances suggesting the transferor does not intend the recipient to have beneficial interest in the property.