The Wrigley Corporation needs to raise 32 million The invest

The Wrigley Corporation needs to raise $32 million. The investment banking firm of Tinkers, Evers & Chance will handle the transaction.

a. If stock is utilized, 2,000,000 shares will be sold to the public at $17.75 per share. The corporation will receive a net price of $16.00 per share. What is the percentage underwriting spread per share? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. If bonds are utilized, slightly over 32,000 bonds will be sold to the public at $1,005 per bond. The corporation will receive a net price of $1,000 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c-1. Which alternative has the larger percentage of spread?

c-2. Is this the normal relationship between the two types of issues? Yes or no?

Solution

a. underwriting spread per share (sale price - net receive price)/ sale price

= ($17.75- $16.00) / 17.75

= 0.0625 or 6.25%

b. underwriting spread per bond = (sale price - net receive price)/ sale price

= ($1005- $1000) / 1005

= 0.0049 or 0.49%

c-1. Which alternative has the larger percentage of spread?

Stock

c-2 Is this the normal relationship between the two types of issues? Yes or no?

Yes