Question: The Wrigley Corporation needs to raise $38 million. The investment banking firm of Tinkers, Evers & Chance will handle the transaction.
a. If stock is utilized, 1,900,000 shares will be sold to the public at $21.00 per share. The corporation will receive a net price of $20.00 per share. What is the percentage underwriting spread per share? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. If bonds are utilized, slightly over 38,000 bonds will be sold to the public at $1,010 per bond. The corporation will receive a net price of $996 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c-1. Which alternative has the larger percentage of spread?
c-2. Is this the normal relationship between the two types of issues?