Great Plains Investment Inc. (GPI), an investment banking firm, has proposed two types of payment plans for the IPO being considered by Ashford Community Hospital. The first is a firm commitment of $5,000,000
The second is a best efforts arrangement in which GPI will receive $4.00 for every share sold up to a maximum of $2,000,000 for the 500,000 shares being offered. How much money will GPI earn under the best efforts method if it is able to sell only 80% of the offering at a price of $30.00 per share?
A) $2,000,000
B) $1,800,000
C) $1,600,000
D) $1,400,000
Answer: C
Explanation: C) Best efforts cash flow = # of shares offered × percent sold × commission per share sold
= 500,000 × 0.80 × $4.00 = $1,600,000.
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