Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows:
Price to public: $5 per share
Number of shares: 3 million
Proceeds to Beedles $14,000,000
The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at an average price of
a. $5 per share? (Answer in book = $700,000)
b. $6 per share? (Answer in book = $3,700,000)
c. $4 per share? (Answer in book = -$2,300,000)