Problem 15-10 Underwriting spread [LO2]

The Wrigley Corporation needs to raise $27 million. The investment banking firm of Tinkers, Evers, & Chance will handle the transaction.

a.

If stock is utilized, 1,600,000 shares will be sold to the public at $20.55 per share. The corporation will receive a net price of $17 per share. What is the percentage underwriting spread per share? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Underwriting spread per share

%

b.

If bonds are utilized, slightly over 27,200 bonds will be sold to the public at $1,003 per bond. The corporation will receive a net price of $998 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Underwriting spread per bond

%

c-1.

Which alternative has the larger percentage of spread?

	Stock
	Bond

c-2.

Is this the normal relationship between the two types of issues?

	Yes
	No

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