DRK, Inc., has just sold 100,000 shares in an initial public offering. The underwriter's explicit fees were $60,000.

11. DRK, Inc., has just sold 100,000 shares in an initial public offering. The underwriter’s explicit fees were $60,000. The offering price for the shares was $40, but immediately upon issue, the share price jumped to $44.a. What is your best guess as to the total cost to DRK of the equity issue?b. Is the entire cost of the underwriting a source of profit to the underwriters?

Solution 11:a) Computation of total cost to DRK of the equity issue:Amt.Explicit Cost $60,000 Implicit costLoss from undervaluation($44-$40)*100,000 $400,000 Total cost to DRK of the equity...