Problem 1: The Walton Electric is a big success. The company wants to start a new project of producing Smart Television, and now wants to sell common stock to raise capital for expansion of the business and to pay off the venture capital firm. Southern Investment Bank is proposing two types of compensation arrangements. The first is a firm commitment of $25,000,000. The second is a best efforts arrangement in which Southern will receive $3.00 for every share of stock it sells up to $26,250,000 for the 875,000 shares that it will offer to the public. The offer price to the public is $30.00 per share.

a) If Southern sells 100% of the shares, what are firms proceeds? What is the payment to Southern under each method of issuing securities?

b) What if it sells 80% of the shares? At what percentage of sold shares are the proceeds to Walton the sameunder the two compensation arrangements?