Taylor Corporation wants to raise $40 million. Its stock price is now $25 per share. The new issue will be priced at $23 per share. The company will incur expenses of $1 million. The underwriters'' compensation will be 8% of the issue price and the underwriter will incur expenses of $1.2 million.
a. How many shares of stock must be sold for the company to net $40 million after costs and expenses?
b. The out-of-pocket expenses incurred by the investment banker were $300,000. What profit or loss would the investment banker realize?
c. Explain the terms "best efforts basis" and "underwriting" as they are used in investment banking. .
d. What is the most important single reason for a firm to go public.
e. What is the most important single reason for a firm NOT to go public.