Kern Corporation entered into an agreement with its investment banker to sell 20 million shares of the company's stock with Kern netting $450 million from the offering. The expected price to the public was $24 per share.
The out-of-pocket expenses incurred by the investment banker were $10 million.
a. What profit or loss would the investment banker incur if the issue were sold to the public at an average price of $24 per share?
b. What profit or loss would the investment banker realize if the issue were sold to the public at an average price of $22 per share?
c. Is the agreement between the company and its investment banker an example of a negotiated or a best-efforts deal? Why? Which is riskier to the company? Why?