The Wrigley Corporation needs to raise $17 million. Theinvestment banking firm of Tinkers, Evers & Chance will handlethe transaction.
a. If stock is utilized, 1,700,000 shares will besold to the public at $10.75 per share. The corporation willreceive a net price of $10.00 per share. What is the percentageunderwriting spread per share? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces.)
b. If bonds are utilized, slightly over 17,000bonds will be sold to the public at $1,005 per bond. Thecorporation will receive a net price of $997 per bond. What is thepercentage of underwriting spread per bond? (Relate the dollarspread to the public price.) (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces.)
c-1. Which alternative has the larger percentageof spread?
c-2. Is this the normal relationship between thetwo types of issues?
