Calculating Costs of Issuing Stock TV Technology Corp. recently went public with an initial public offering of 1.5 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $24.50 per share and the underwriter's spread was 5 percent of the gross proceeds. TV also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by TV from the sale of the 3 million shares of stock.
A) $24.50
B) $24.70
C) $25.79
D) $26.00

Question

Quizplus · Accepted Answer

The gross proceeds per share can be calculated by dividing the net proceeds per share by (1 - underwriter's spread). Gross proceeds per share = $24.50 / (1 - 0.05) = $24.50 / 0.95 = $25.79. However, the question asks for the gross proceeds per share, which is $26.00, as the underwriter's spread is 5% of the gross proceeds, not the net proceeds.