Reference no: EM13721489
An investment banker enters into a best efforts arrangement to try and sell 10 million shares of stock at $12 per share for Pierre Imports. The investment banker incurs expenses of $2,000,000 in floating the issue while the company incurs expenses of $1,000,000. The investment banker will receive 8 percent of the proceeds of the offering.
a. If the offering is successful and sells out at the expected price of $12, how much money will the company receive?
b. If the offering is successful and sells out at the expected price of $12, how much money will the investment banker receive?
c. If the offering is partially successful; all shares are sold, but at a price of $10. How much does the company receive?
d. If the offering is partially successful; all shares are sold, but at a price of $10. How much does the investment banker receive?
e. Who bears more risk with a best efforts deal, the company or the investment banker? Why?
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