Question

The Wrigley Corporation needs to raise $44 million. The investment banking firm of Tinkers, Evers & Chance will handle the transaction. If stock is utilized, 2,300,000 shares will be sold to the public at $20.50 per share. The corporation will receive a net price of $19 per share. What is the percentage underwriting spread per share? If bonds are utilized, slightly over 43,700 bonds will be sold to the public at $1,009 per bond. The corporation will receive a net price of $994 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) Which alternative has the larger percentage of spread? Is this the normal relationship between the two types of issues?

Answer 1

Solutions Sprendo The difference between public price and price not to corporation is called Spread. percentage Spread i the average of the bid price and ask price is shown as percentage. . cas Spread - public price- Net to corporation = 20.50-19.00 = $1.50 percentage Spreadde 150X100 20-50. The percentage of spread per share 7300 Spread = 1009-994 percentage. Spread = 15x100 1009 De percentage of Spread Perbond. = 1487 ce the percentage of spread per shane is 7.30 whereas the percentage of underwriting spread per bond is tus. so, the share constituites larger percent constitutes larger Dercentos of Spread than bondo This implies that the out of pocket expence and other commissions for the issues of share are higher than the issue of bond