An investment banker agrees to underwrite an issue of $10 million shares of stock for Rochester Industries on a best-efforts basis. The investment is able to sell 8 million shares for $10.50 per share and it charges Rochester Industries $0.225 per share sold.

1. How much money does Rochester Industries receive?

a. $15,000,000

b. $84,000,000

c. $76,200,000

d. $82,200,000

2. What is the profit to the investment banker if it is able to sell 8 million shares for $10.50 per share?

a. profit of $1,000,000

b. loss of $7,500,000

c. loss of $450,000

d. profit of $1,800,000

3. An investment banker agrees to underwrite an issue of 10 million shares of stock for TWReasearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWReasearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. What is the profit (loss) to the investment banker?

a. $1,000,000

b. $2,000,000

c. $7,000,000

d. -$7,500,000

e. -$1,000,000