Turbo Technology Corp. recently went public with an initial public offering of 3 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $7.50 per share and the underwriter's spread was 9 percent of the gross proceeds. Turbo Technology also paid legal and other administrative costs of $200,000 for the IPO. Calculate the gross proceeds per share received by Turbo Technology from the sale of the 3 million shares of stock.
A) $7.50
B) $7.57
C) $8.24
D) $8.32

Question

Quizplus · Accepted Answer

The gross proceeds per share can be calculated by dividing the total gross proceeds by the number of shares. Given the net proceeds of $7.50 per share and the underwriter's spread of 9%, we can work backwards to find the gross proceeds per share. The net proceeds represent 91% (100% - 9%) of the gross proceeds. Therefore, $7.50 = 91% of the gross proceeds per share. Calculating the gross proceeds per share: $7.50 / 0.91 = $8.24. However, the legal and administrative costs do not affect the gross proceeds per share calculation directly since they are a fixed total cost, not a per-share cost. The correct calculation without considering the $200,000 costs (since they are not deducted on a per-share basis for this calculation) leads to $8.24 as the gross proceeds per share, indicating a mistake in the choice selection. The correct answer should reflect the calculation without subtracting the fixed costs from the gross proceeds, which was not provided among the options. Given the options, the closest to the correct calculation based on the provided method is $8.24, but an error in the explanation led to the wrong final choice being indicated. The correct approach to find the gross proceeds per share is to divide the net proceeds by the percentage that represents the net after the underwriter's spread, which correctly leads to $8.24, but due to a mistake in interpreting the options, the final selection was incorrect. The correct explanation shows that after recalculating, $8.24 is the accurate gross proceeds per share before deducting fixed costs, which aligns with option C, not D as initially indicated.