Question

The Maple Ridge Slugger Bat Company needs to raise $27 million. The investment dealer Walker and Jenkins will handle the transaction. (Do not round the intermediate calculations. Round the final answers to 2 decimal places.)

a. If stock is utilized, 1,900,000 shares will be sold to the public at $16.45 per share. The corporation will receive a net price of $14 per share. What is the percentage of underwriting spread per share? Percentage underwriting spread per share %

b. If bonds are utilized, slightly over 26,600 bonds will be sold to the public at $1,008 per bond. The corporation will receive a net price of $992 per bond. What is the percentage of underwriting spread per bond? Percentage underwriting spread per bond %

c-1. Which alternative has the larger percentage of spread? Shares Bond

c-2. Is this the normal relationship between the two types of issues?

Yes No

Answer 1

a.)percentage of underwriting spread per share is :

16.45-14/16.45*100 = 14.90 Percent

b.)1008-992/1008*100 = 1.59Percent

c-1) shares have a larger spread.

c-2)Yes.