Bank of London is selling 2 million shares in an IPO. The target price is €25 per share. The investment bank is asking for a spread of 7%. We would prefer the spread to be lower, but fear that the investment bank will then want a lower offer price to reduce their risk. How much money will the firm receive if the offer price is €25 per share and the spread is 7%. If you insist on a lower spread and are willing to accept a price as low as €24 per share, then how high can the spread be before you would have preferred a 7% spread and €25 per share price?

Bank of London is selling 2 million shares in an IPO. The target price is €25 per share. The investment bank is asking for a spread of 7%. We would prefer the spread to be lower, but fear that the investment bank will then want a lower offer price to reduce their risk. How much money will the firm receive if the offer price is €25 per share and the spread is 7%. If you insist on a lower spread and are willing to accept a price as low as €24 per share, then how high can the spread be before you would have preferred a 7% spread and €25 per share price?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 5P

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