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    stinkydjinni's Avatar
    stinkydjinni Posts: 7, Reputation: 1
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    #1

    Nov 18, 2009, 06:58 PM
    Formula for net proceeds
    The Presley Corporation is about to go public. It currently has aftertax earnings of $7,500,000, and 2,500,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 600,000 new shares. The new shares will be priced to the public at $20 per share, with a 5 percent spread on the offering price. There will also be $200,000 in out-of-picket costs to the corporation.

    a. Compute the net proceeds to the Presley Corporation

    I am not asking for the answer for this I just want to know what the formula is to figure it out. I saw someone posted an answer, but without the formula I cannot be sure it is correct, and I learn nothing! Please help.
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Nov 19, 2009, 05:31 AM
    You might be thinking that this is more involved than it really is...

    600K shares are sold at $20 per. The underwriter keeps 5% of that as their fee, leaving Presley with 95% of the sales proceeds. Additionally, Presley pays 200K in out-of-pockets.

    And that's it.
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