Global Traders is offering 130,000 shares of stock to the public in a general cash offer. The offer price is $38 a share and the underwriter's spread is 8 percent. The administrative costs are estimated at $865,000. How much will Global Traders receive from this stock offering as net proceeds assuming the issue is completely sold?

The net proceeds is $ 3,679,800.00  

Explanation:

The net proceeds is the total proceeds less spread of 8% on the total proceeds as well as the administrative costs of $865,000

Total  proceeds     ($38*130,000)                 $ 4,940,000.00  

Less 8% underwriter's spread

(8%* 4,940,000.00)                                        ($395,200.00)

Administrative costs                                       ($865,000.00)  

Net proceeds from the issue                         $3,679,800.00  

Ultimately, the net proceeds from the issue assuming it is completely sold out is  $3,679,800.00  

The spread of 8% is necessary as paying it gives complete assurance that the underwriters would ensure all shares are sold in order to raise the required amount.

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