2. Look at the following abstract about NewStar's new-issue prospectus and answer questions below. (&pts) Prospectus 1,000,000 shares New Star Inc. Common Stock ($0.01 par value) Of the 1,000,000 shares of Common Stock offered hereby, 500,000 shares are being sold by the Company and 500,000 shares are being sold by the Selling Stockholders. The Company will not receive any of the proceeds from the sales of shares by the Selling Stockholders. Price to Public Underwriting Proceeds to Discount Company Proceeds to Selling Shareholders** 10.5 5,250,000 Per share Total** $12.00 12,000,000 $1.5 $1,500,000 10.5 5.250,000 * Before deducting expenses payable by the Company estimated at $600,000, of which 50% of expenses will be paid by the Company ** The Company and the Selling Shareholders have granted to the Underwriters options to purchase up to 120,000 additional shares at the initial offering prices less the underwriting discount, solely to cover overallotment. (1) Is this issue a primary offering, a secondary offering, or both? (2) What are the direct costs of the issue as a percentage of the total proceeds? (3) According to the following chart, are these direct costs more than the average for an issue of these size? Please explain. (1) Is this issue a primary offering, a secondary offering, or both? (2) What are the direct costs of the issue as a percentage of the total proceeds? (3) According to the following chart, are these direct costs more than the average for an issue of these size? Please explain. 10 IPOs SEOS Convertibles Bonds 00 6 Total direct costs (%) 250 Less than 600 1.000 1.500- 2.000 250- 2.000- 2.500 1,500 2.500- 600- 000'e 000'E 1.000- and up Proceeds ($ millions) 2 (4) Suppose that on the first day of trading the price of New Star stock is $15 a share. What is the cost in dollars of the underpricing