Question

7. value: 4.00 points Becker Brothers is the managing underwriter for a 1.45-million-share issue by Jay's Hamburger Heaven. Becker Brothers is "handling 12 percent of the issue. Its price is $28 per share and the price to the public is $29.00 Becker also provides the market stabilization function. During the issuance, the market for the stock turned soft, and Becker is forced to purchase 50,000 shares in the open market at an average price of $28.50. They later sell the shares at an average value of $28.10. Compute Becker Brothers overall gain or loss from managing the issue. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Net gain Net loss

Answer 1

Answer = gain of $154000

Explanation:

Becker brother is handling 12% of the issue

So respective number of shares handled by becker brother = 1.45 million × 12% = 0.174 million or 174000 shares

The profit or earning on 174000 shares = 174000 × ($29-$28) = $174000

Under market stabilization scheme, they need to bought 50000 shares from open market at $28.50

The loss on sale of 50000 shares = 50000 × (28.5-$28.1) = $20000

So overoll profit from managing issue = $174000 - $20000 = $154000

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