Assume Safeguard Detective Company is thinking about three different size offerings for the issuance of ad ditional shares Size of offer Public price Net to Corporation a. S1.5 million $50 $46.10 b. $5.5 million $50 $4680 C. $20.0 million $4815 What is the percentage underwriting spread for each size offer? What principle does this demonstrate? Solution: Safeguard Detective Company a. Spread=$50-$46.10=$390(on$15 million) %underwriting spread =$3.90/$50=7.80% b Spread=$50-$46.80=$3.20(on $5.5 million) underwriting spread=$3.20/$50=6.40% c. Spread=$50-$4815=$1.85(on $20 million) underwriting spread=$1.85/$50=3.70% The principle demonstrated is the larger the offer size the lower the percentage spread CopyrightC2005 by The McGraw-Hill Companies, IncCopyright © 2005 by The McGraw-Hill Companies, Inc. S-531 15-5. Assume Safeguard Detective Company is thinking about three different size offerings for the issuance of additionalshares. Size of Offer Public Price Net to Corporation a. $1.5 million $50 $46.10 b. $5.5 million $50 $46.80 c. $20.0 million $50 $48.15 What is the percentage underwriting spread for each size offer? What principle does this demonstrate? Solution: Safeguard Detective Company a. Spread = $50 – $46.10 = $3.90 (on $1.5 million) % underwriting spread = $3.90/$50 = 7.80% b. Spread = $50 – $46.80 = $3.20 (on $5.5 million) % underwriting spread = $3.20/$50 = 6.40% c. Spread = $50 – $48.15 = $1.85 (on $20 million) % underwriting spread = $1.85/$50 = 3.70% The principle demonstrated is the larger the offer size, the lower the percentage spread