A company issues a $200 million IPO. The offer price is $5 per share. The underwriters spread is 8%. The underwriter has agreed to a stand-by arrangement. For issuing the IPO, the company will pay some admin costs. The admin costs include a legal fee of $50,000, an accountant fee of $30,000 and other admin costs amounting to $170,000. The companys share price increases by 10% at the end of the first day of trading. However, the offer has not been as successful as expected, and only 95% of the shares have been sold.

1. Determine the companys total cost of issuing the securities.
2. Determine proceeds available to the underwriter and to the issuer.
3. How will the proceeds available to underwriter change for a best-effort arrangement?

If the arrangement was best-effort instead of stand-by, who would have borne more risk? The underwriter or the issuer? Why?