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22 November, 06:01

Game Guys, Inc., needs several million dollars to expand and follow its strategic plan. In negotiations with the investment banker, they agree to issue 50 million shares of common stock, at $25/share. If the investment bankers fee for underwriting the total sale is 5.82%, what is the discounted price that the investment bank is willing to pay Game Guys for the shares?

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  1. 22 November, 06:13
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    Discounted price per share = $23.545

    Discounted total payment = $1,177,250,000

    Explanation:

    The value of the shares are price into number of shares = 25*50 million =

    $1,250,000,000, however the bankers are charging underwriting fees of 5.82 % which means that the discounted price that the bankers are willing to pay for the shares are (1-0.0582) * 1,250,000,000 = 1,177,250,000

    So the total amount of money they will be willing to pay will be $1,177,250,000

    In order to calculate the discounted price per stock we will divide the total money by number of stocks so, 1,177,250,000/50 million = $23.545
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