Question:

A company issues a $280 million IPO. The offer price is set to $10 per share. The underwriter's spread is 8%.

The underwriter has agreed to a best-effort 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 $35,000 and other admin costs amounting to $85,000. The company's share price increases by 5% at the end of the first day of trading.

i.Determine the company's total cost of issuing the securities..

"ii.Determine proceeds available to the underwriter and to the issuer if 92% of the shares are sold. "

"iii. Who bears more risk under the current arrangement? The underwriter or the issuer? Why? "

"iv. How will the proceeds available to the issuer and to the underwriter change for a stand-by arrangement? "