Global Traders is offering 130,000 shares of stock to the public in a general cash offer. The offer price is $38 a share and the underwriter's spread is 8 percent. The administrative costs are estimated at $865,000. How much will Global Traders receive from this stock offering as net proceeds assuming the issue is completely sold?

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Business

Zena

12 October, 07:16

Global Traders is offering 130,000 shares of stock to the public in a general cash offer. The offer price is $38 a share and the underwriter's spread is 8 percent. The administrative costs are estimated at $865,000. How much will Global Traders receive from this stock offering as net proceeds assuming the issue is completely sold?

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Leonard Haynes · Answer 1

The net proceeds is $ 3,679,800.00

Explanation:

The net proceeds is the total proceeds less spread of 8% on the total proceeds as well as the administrative costs of $865,000

Total proceeds ($38*130,000) $ 4,940,000.00

Less 8% underwriter's spread

(8% * 4,940,000.00) ($395,200.00)

Administrative costs ($865,000.00)

Net proceeds from the issue $3,679,800.00

Ultimately, the net proceeds from the issue assuming it is completely sold out is $3,679,800.00

The spread of 8% is necessary as paying it gives complete assurance that the underwriters would ensure all shares are sold in order to raise the required amount.