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Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of...

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 $310,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?

A) $4.75 per share? Use minus sign to enter loss, if any.

B) $ $6.5 per share? Use minus sign to enter loss, if any.

C) $4 per share? Use minus sign to enter loss, if any.

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Answer #1

Profit/Loss = (Price per share x Number of shares)-Proceeds to Beedles Inc.-Out-of pocket expenses Price per share Number of shares Proceeds to Beedles Inc. Out-of pocket expenses Profit/Loss Part-(a) Part-(b Part-(c) $4.00 3,000,0003,000,000 3,000,000 $14,000,000 $14,000,000 $14,000,000 $310,000 $310,000$310,000 $60,000$5,190,000 -$2,310,000 $4.75 $6.50 NOTE For Part-(a): Profit/Loss (3,000,000 shares x $4.75) $14,000,000 $310,000 -$60,000; For Part-(b): Profit/Loss (3,000,000 shares x $6.50) $14,000,000 $310,000 $5,190,000; For Part-(c): Profit/Loss (3,000,000 shares x $4.00)- $14,000,000 $310,000-$2,310,000.

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