If the underwriring spread is 4%, how many shares will the company need to issue in order to be left with the net proceeds of $5 million?

Gus games stock + mcq question

The underwriting spread, also known as the underwriter’s discount or commission, is a fee charged by banks and other financial institutions who serve as intermediaries in the initial public offering (IPO) process. The spread is usually calculated as a percentage from the amount of shares that are being issued. If an IPO has an Underwriting Spread of 4% it means that 4% of all shares must be paid before any proceeds can be received by the company.

In order to calculate how many shares will need to be issued in order to get net proceeds of $5 million with a 4% underwriting spread, we can use the following equation: Net Proceeds/ ((1-Underwriring Spread)*Share Price) = Number of Shares So for our example here, we would have: 5M /((1-0.04)*$10 per share) = 500K.

The company would need to issue 500k shares if its share price was $10/share and there was an underwriting spread of 4%. This will allow it to collect $5 million net proceeds.

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