A company is offering 5,000,000 new shares to the public. The shares are being sold to a syndicate for $12 and are being reoffered to the public at $13. The compensation to the underwriters for each share sold is $0.75. The selling group receives $0.30 a share for each share it sells, and the managing underwriter retains $0.25 in fees for each share sold by anybody. The selling group will assist in selling 1,000,000 out of the 5,000,000 shares offered. If the selling group sells its entire allotment how much does it make in profits

The selling group makes $300,000 in profit if it sells its entire allotment.

Explanation:

The amount of profit makes by the selling group can be calculated using the following formula:

Selling group profit = Number of shares expected to be sold by the selling group * Amount to receive per share by the selling group (1)

Where:

Number of shares expected to be sold by the selling group = 1,000,000

Amount to receive per share by the selling group = $0.30

Substituting the relevant values into equation (1), we have:

Selling group profit = 1,000,000 * $0.30 = $300,000

Therefore, the selling group makes $300,000 in profit if it sells its entire allotment.

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