Becker Brothers is the managing underwriter for a 1.50-million-share issue by Jay’s Hamburger Heaven. Becker Brothers is “handling” 8 percent of the issue. Its price is $20 per share and the price to the public is $23.50.
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 $22.00. They later sell the shares at an average value of $21.00.
Compute Becker Brothers’ overall gain or loss from managing the issue.
The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D1) at the end of the current year will be $1.55. The growth rate (g) is 8 percent and the discount rate (Ke) is 10 percent.
a. What should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. If there is a 3 percent total underwriting spread on the stock, how much will the issuing corporation receive? (Do not round intermediate calculations and round your answer to 2 decimal places.)
c. If the issuing corporation requires a net price of $76.00 (proceeds to the corporation) and there is a 3 percent underwriting spread, what should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.)