The Detroit Slugger Bat Company needs to raise $30 million. The investment banking firm of Kaline, Horton, greenberg will handle the transaction a. If stock is utilized, 1. 8 million shares will be sold to the public at $16.75 per share. The corporation will receive a net price of $16 per share. What is the percentage of underwriting spread per share? b. If bonds are utilized, slightly over 30,000 bonds will be sold to the public at $1,001 per bond. The corporation will receive a net price of$993 per bond What is the percentage of underwriting spread per bond? (Relate the dollar pread to the public price c. Which alternative has the larger percentage of spread? Is this the normal lationship between the two types of issues? Solution: Detroit Slugger Bat Company a. Spread=$16.75-$16.00=$0.75 Underwriting spread=$0.75/$16.75=4.48% b. Spread=$1001-$993=$8 Underwriting spread=$8/$1,001=799%or 80%(rounded) C. The stock alternative has the larger percentage spread This is normal because there is more uncertainty in the market associated with a stock offering and investment bankers want to be appropriately compensated -533 Copyright C2005 by The McGra-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-533 15-7. The Detroit Slugger Bat Company needs to raise $30 million. The investment banking firm of Kaline, Horton, & Greenberg will handle the transaction. a. If stock is utilized, 1.8 million shares will be sold to the public at $16.75 per share. The corporation will receive a net price of $16 per share. What is the percentage of underwriting spread per share? b. If bonds are utilized, slightly over 30,000 bonds will be sold to the public at $1,001 per bond. The corporation will receive a net price of $993 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) c. Which alternative has the larger percentage of spread? Is this the normal relationship between the two types of issues? Solution: Detroit Slugger Bat Company a. Spread = $16.75 – $16.00 = $0.75 % Underwriting spread = $0.75/$16.75 = 4.48% b. Spread = $1,001 – $993 = $8 % Underwriting spread = $8/$1,001 = .799% or .80% (rounded) c. The stock alternative has the larger percentage spread. This is normal because there is more uncertainty in the market associated with a stock offering and investment bankers want to be appropriately compensated