Question

An investment bank pays $35.40 per share for 4.9 million shares of GM Company in a firm commitment stock offering. It then can sell those shares to the public for $34 per share.

a. How much money does GM receive? (Enter your answer in dollars, not in millions.)
b. What is the profit to the investment bank? (Enter your answer in dollars, not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)
c. What is the stock price of GM? (Enter your answer in dollars, not in millions.)

Answer 1

(a)-Money to be received by GM Company

Money to be received by GM Company = Number of shares sold by investment bank x Price per share

= 4,900,000 Shares x $35.40 per share

= $173,460,000

(b)-Profit to the Investment Bank

Profit to the Investment Bank = Number of shares sold by investment bank x (Selling price per share – Purchase price per share)

= 4,900,000 Shares x ($34.00 per share - $35.40 per share)

= -$6,860,000 (Negative)

(c)-Stock price of GM Company

The Stock price of GM Company is $34.00 per share, because this the price paid by the publics to acquire/purchase the shares.