When Microsoft went public, the company sold 3 million new shares (the
primary issue). In addition, existing shareholders sold .5 million
shares (the secondary issue) and kept 21.2 million shares. The new
shares were offered to the public at $20, and the underwriters received a
spread of $1.41 a share. At the end of the first day’s trading the
market price was $34 a share.
Required:
a. How much money did the company receive before paying its portion of the direct costs?
b. How much did the existing shareholders receive from the sale before paying their portion of the direct costs?
c. If the issue had been sold to the underwriters for $29 a
share, how many shares would the company have needed to sell to raise
the same amount of cash?
d. How much better off would the existing shareholders have been?
