Question
Steel City Motors wants to have an initial public offering. Their investment bank presents two options for the initial issue: a fixed commitment offer of
Steel City Motors wants to have an initial public offering. Their investment bank presents two options for the initial issue: a fixed commitment offer of $11,600,000, or a best-efforts arrangement where the investment bank receives $2.80 per share offered to the public. Steel City intends to sell 1,000,000 shares at a price of $15. If 80% of the shares are sold at the predetermined price, which arrangement should Steel City choose? Best efforts arrangement because it provides additional proceeds of $2,433,400 Best efforts arrangement because it provides additional proceeds of $2,116,000 Fixed-commitment arrangement because it provides additional proceeds of $2,433,400 Best efforts arrangement because it provides additional proceeds of $1,840,000 Fixed-commitment arrangement because it provides additional proceeds of $1,840,000
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