Question

Problem 18-01
Profit or Loss on New Stock Issue

Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows:

Price to public:	$5 per share
Number of shares:	3 million
Proceeds to Beedles:	$14,000,000

The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $290,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?

1. $5.25 per share? Use minus sign to enter loss, if any.
   $
   
2. $6.25 per share? Use minus sign to enter loss, if any.
   $
   
3. $4 per share? Use minus sign to enter loss, if any.
   $

Answer 1

	Gross Sale proceeds		Amount paid to Beedles	Out of pocket expenses	Profit/(Loss)
	Calculation	Amount
a)	[3000000*5.25]	15750000	14000000	290000	1460000
b)	[3000000*6.25]	18750000	14000000	290000	4460000
c)	[3000000*4.00]	12000000	14000000	290000	-2290000