ABC Inc. would like to issue an IPO. The underwriter (UW) has given ABC the option of choosing between a firm commitment and best-efforts IPO.

• Under the firm commitment, the UW would buy all 500,000 shares of ABC for $45 a share. If ABC chooses to go with the best-efforts option, the UW's fee will be $3 per share.

1. How much money will be raised for ABC in a firm commitment if the stock sells for $35 on the open market? What will the UWs profit/loss be?
2. What would the answers in part (a) be if ABC chose best-efforts underwriting instead?
3. Assume that only 80% of the issue is sold at the $35 price. What would the profit/loss be for ABC and the UW in a firm commitment?