In its IPO, Jillian's Imprints, a small publishing house, offered stock at a price of $10.00 per share. The underwriters of this IPO had a spread of 6.5% per share. If 2 million shares were sold, what funds did Jillian's receive from the IPO?

Funds received by Jillian's = $18.7m

Explanation:

Before we find how much funds did Jillian's receive from the IPO we need to understand the story behind underwriters spread of 6.5% per share. An underwriters spread compensates the underwriter for services like negotiating, managing the offering, assuming the risk of buy the stock if left unsubscribed and managing the sale of the shares. The spread is basically the difference between what what issuer receives per share and what the underwriter sells per share.

Now in the question, the underwriters spread is a percentage of a share. The underwriter has managed to offer the stock to the general public at a price of $10 per share but Jillian's Imprints will only receive 93.5% of the price being offered to the public. So the underwriters spread in monetary terms would be as follows;

Underwriters spread = $10*6.5%

US = $0.65 per share

Underwriters total spread = $0.65*2m shares

UTS = $1.3m

Total funds raised from the IPO = $10*2m shares

Total funds = $20m

Funds received by Jillian's = $20m - $1.3m

Funds received by Jillian's = $18.7m