13 May WHO BEARS THE GREATER RISK IN A BEST EFFORTS DEAL, THE INVESTMENT BANKER OR THE COMPANY?
Otel corporation agreement with investment banker
Question 1. Otel Corporation entered into an agreement with
its investment banker to sell 15 million shares of the company’s stock with
Otel netting $270 million dollars from the offering. The out-of-pocket expenses
incurred by the investment banker were $5,000,000.
a. What
profit or loss would the investment banker incur if the issue sold to the
public at an average price of $25 per share?
b. What
profit or loss would the investment banker incur if the issue were sold to the
public at an average price of $15 per share?
c. Is this
an example of a negotiated deal or best efforts? Why? Who bears the greater
risk, the investment banker or the company? Why?
d. If the
investment banker agrees to handle the issue on a best efforts basis, earning
7.5 percent of the proceeds, calculate the investment banker’s profit or loss
if all 15 million shares are sold at an average price of $15. How much will the
company receive?
e. Who bears
the greater risk in a best efforts deal, the investment banker or the company?
Why?
Please show work for all problems.Otel corporation agreement with investment bankerQuestion 1. Otel Corporation entered into an agreement with
its investment banker to sell 15 million shares of the company’s stock with
Otel netting $270 million dollars from the offering. The out-of-pocket expenses
incurred by the investment banker were $5,000,000.a. What
profit or loss would the investment banker incur if the issue sold to the
public at an average price of $25 per share?b. What
profit or loss would the investment banker incur if the issue were sold to the
public at an average price of $15 per share?c. Is this
an example of a negotiated deal or best efforts? Why? Who bears the greater
risk, the investment banker or the company? Why?d. If the
investment banker agrees to handle the issue on a best efforts basis, earning
7.5 percent of the proceeds, calculate the investment banker’s profit or loss
if all 15 million shares are sold at an average price of $15. How much will the
company receive?e. Who bears
the greater risk in a best efforts deal, the investment banker or the company?
Why?Please show work for all problems.
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