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Under writing (chp 18)
1.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 1 Underwriting: Underwritingisthe processbywhichAgentsraise investmentcapital frominvestorsonbehalf of corporationsthatare issuingsecurities(bothSharesanddebentures). Firm Underwriting: In a firmunderwriting,the underwriterguaranteestopurchase all of the shares beingofferedfor sale bythe Company regardlessof whetherornottheycan sell themtoinvestors.A firm underwritingagreementisthe mostdesirablefor the Company because itguaranteesthemall of theirmoneyrightaway.The more in demandthe offeringis,the more likelyitisthatit will be done on a firmcommitmentbasis.Inafirmcommitment,the underwriterputstheirownmoneyatriskif theycan’t sell the securitiestoinvestors. Q1:- solution: Statement showing liability of each underwriter Working Notes: *Unmarked Applications: A: 22500 * 50 /100 = 11250 B: 22500 * 25 / 100 = 5625 C: 22500 * 25 / 100 = 5625 A (50%) B (25%) C (25%) Total Gross Liability 37500 18750 18750 75000 less: Marked Applications (15000) (7500) (15000) (37500) 22500 11250 3750 37500 less: Un Marked Applications * (onGross liability%age) (11250) (5625) (5625) (22500) ResultantLiability 11250 5625 (1875) 15000 less: Surplusof ” C” ** (onGross liability%age) (1250) (625) 1875 --- NetLiability 10000 5000 NIL 15000
2.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 2 ** Surplus of C: A : B 50 : 25 1875 * 50 / 75 : 1875 * 25 / 75 1250 : 625 Q 4:- Solution: Statement showing liability of each underwriter Working Notes: *Unmarked Applications: Alpha: 150000 * 40 /100 = 60000 Beta: 150000 * 40 /100 = 60000 Zeta: 150000 * 20 /100 = 30000 Alpha (40%) Beta (40%) Zeta (20%) Total Gross Liability 100000 100000 500000 2500000 less: Marked Applications 1300000 700000 250000 2250000 (300000) 300000 250000 250000 less: Un Marked Applications * (onGross liability%age) (60000) (60000) (30000) (150000) ResultantLiability (360000) 240000 220000 100000 less: Surplusof ” Alpha” ** (onGross liability%age) 360000 (240000) (120000) ------- NetLiability NIL . NIL . 100000 100000
3.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 3 ** Surplus of Alpha: Beta : Zeta 40 : 20 360000 * 40 / 60 : 360000 * 20 / 60 240000 : 120000 Q 5:- Solution: Statement showing liability of each underwriter Working Notes: *Unmarked Applications: A: 200000 * 30 /100 = 60000 B: 200000 * 30 /100 = 60000 C: 200000 * 40 /100 = 80000 A (30%) B (30%) C (40%) Total Gross Liability 750000 750000 100000 2500000 less: Marked Applications (350000) (400000) (1350000) (2100000) 400000 350000 (350000) 400000 less: Un Marked Applications * (onGross liability%age) (60000) (60000) (80000) (200000) ResultantLiability 340000 290000 (430000) 200000 less: Surplusof ” C” ** (onGross liability%age) (215000) (215000) 430000 ------- NetLiability 125000 75000 NIL . 200000
4.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 4 ** Surplus of C: A : B 30 : 30 430000 * 30 / 60 : 430000 * 30 / 60 215000 : 215000 Q 3:- Solution: Statement showing liability of each underwriter Working Notes: *Received Applications: A: 8000 * 30 /100 = 2400 B: 8000 * 30 /100 = 2400 C: 8000 * 20 /100 = 1600 A (30%) B (30%) C (20%) Total (80%) Gross Liability 3000 3000 2000 8000 less: *Received Applications (2400) (2400) (1600) (6400) NetLiability 600 600 400 1600
5.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 5 Q 8:- Solution: Statement showing liability of each underwriter Total M (35%) N (30%) O (20%) P (10%) Q (3%) R (2%) Gross Liability Less: Marked Applications Less: Unmarked Applications (on Gross Liability %age) Less: Surplus of “O” and “Q” (on Gross Liability %age) Less: Surplus of “N” and “P” (on Gross Liability %age) Net Liability 100000 (65000) 35000 (20000) 15000 15000 15000 35000 (10000) 25000 (7000) 18000 (3000) 15000 (1351) 13649 30000 (22500) 7500 (6000) 1500 (2571) (1071) 1071 NIL 20000 (20000) ( 0 ) (4000) (4000) 4000 ( 0 ) NIL 10000 (7500) 2500 (2000) 500 (857) (357) 357 NIL 3000 (5000) (2000) (600) (2600) 2600 ( 0 ) NIL 2000 ( 0 ) 2000 (400) 1600 (172) 1428 (77) 1351 Working Notes: **Unmarked Applications: *Gross Liability %age: M: 20000 * 35 /100 = 7000 M : N : O : P : Q : R N: 20000 * 30 /100 = 6000 35000 : 30000 : 20000 : 10000 : 3000 : 2000 O: 20000 * 20 /100 = 4000 35% :30% 20% 10% 3% 2% P: 20000 * 10 /100 = 2000 Q: 20000 * 3 /100 = 600 R: 200000 * 2 /100 = 400 Surplus of “O” and “Q”: Surplus of “N” and “P”; (4000+2600=6600) (1071+357=1428) M : N : P : R M : R 35 : 30 : 10 : 2 35/37 2/37
6.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 6 Q 2:- Solution: Statement showing liability of each Underwriter Total A B C Gross Liabilities Less:Marked Applications Less:FirmApplications (onGL Ratio) Less:UnmarkedApplications (onGL Ratios) Less:Surplusof “C” (onGL Ratio) Net Liability Add:FirmUnderwriting Total liability 50000 (30000) 20000 (7500) 12500 (7500) 5000 5000 7500 12500 30000 (16000) 14000 (4500) 9500 (4500) 5000 (333) 4667 5000 9667 15000 (10000) 5000 (2250) 2750 (2250) 500 (167) 333 2000 2333 5000 (4000) 1000 (750) 250 (750) (500) 500 0 500 500 Working Notes: *Unmarked Applications: total Received Applications 45000 A: 7500 * 6 /10 = 4500 Marked Applications (30000) B: 7500 * 30 /10 = 2250 15000 C: 7500 * 1 /10 = 750 FirmApplications (7500) UnmarkedApplications 7500 ** Surplus of C: A : B Gross Liability Ratio: 6 : 3 A : B : C 500 * 6 / 9 : 500 * 3 / 9 30000 : 15000 : 5000 333 : 167 6/10 : 3/10 : 1/10
7.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 7 Q 6:- Solution: Statement showing liability of each Underwriter Total A B C Gross Liabilities Less:Marked Applications Less:FirmApplications (onGL Ratio) Less:UnmarkedApplications (onGL Ratios) Less:Surplusof “B” (onGL Ratio) Net Liability Add:FirmUnderwriting Total liability 40000 (14000) 26000 (8400) 17600 (6000) 11600 11600 8400 20000 24000 (4000) 20000 (5040) 14960 (3600) 11360 (1280) 10080 3200 13280 10000 (8000) 2000 (2100) (100) (1500) (1600) 1600 0 1200 1200 6000 (2000) 4000 (1260) 2740 (900) 1840 (320) 1520 4000 5520 Working Notes: *Unmarked Applications: total Received Applications 20000 A: 6000 * 12 /20 = 3600 Marked Applications (14000) B: 6000 * 5 /20 = 1500 UnmarkedApplications 6000 C: 6000 * 3 /20 = 900 ** Surplus of B: A : C Gross Liability Ratio: 12 : 3 A : B : C 1600 * 12 / 15 : 1600 * 3 / 15 24000 : 10000 : 6000 1280 : 320 12/20 : 5/20 : 3/20
8.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 8 Q 7:- Solution: Statement showing liability of each Underwriter Total A B C Gross Liabilities Less:Marked Applications Less:FirmApplications (onGL Ratio) Less:UnmarkedApplications (onGL Ratios) Less:Surplusof “B” (onGL Ratio) Net Liability Add:FirmUnderwriting Total liability 40000 (19400) 20600 (8400) 12200 (600) 11600 11600 8400 20000 24000 (7200) 16800 (5040) 11760 (360) 11400 (1000) 10400 3200 13600 10000 (9000) 1000 (2100) (1100) (150) (1250) 1250 0 4000 4000 6000 (3200) 2800 (1260) 1540 (90) 1450 (250) 1200 1200 2400 Working Notes: *Unmarked Applications: total Received Applications 28400 A: 600 * 12 /20 = 360 Marked Applications (19400) B: 600 * 5 /20 = 150 9000 C: 600 * 3 /20 = 90 FirmApplications (8400) UnmarkedApplications 600 ** Surplus of B: A : C Gross Liability Ratio: 12 : 3 A : B : C 1250 * 12 / 15 : 1250 * 3 / 15 24000 : 10000 : 6000 1000 : 250 12/20 : 5/20 : 3/2
9.
Part II Chapter
18: “Underwriting of Shares and Debentures” Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 9 Q 9:- Solution: Statement showing liability of each Underwriter Total A B C Gross Liabilities Less:Marked Applications Less:FirmApplications Less:UnmarkedApplications (onGL Ratios) Less:Surplusof “B” (onGL Ratio) Net Liability Add:FirmUnderwriting Total liability 80000 (22000) 58000 (16800) 41200 (18000) 23200 23200 16800 40000 48000 (8000) 40000 (6400) 33600 (10800) 22800 (2000) 20800 6400 27200 20000 (10000) 10000 (8000) 2000 (4500) (2500) 2500 0 8000 8000 12000 (4000) 8000 (2400) 5600 (2700) 2900 (500) 2400 2400 4800 Working Notes: *Unmarked Applications: total Received Applications 40000 A: 18000 * 12 /20 = 10800 Marked Applications (22000) B: 18000 * 5 /20 = 4500 UnmarkedApplications 18000 C: 18000 * 3 /20 = 2700 ** Surplus of B: A : C Gross Liability Ratio: 12 : 3 A : B : C 2500 * 12 / 15 : 2500 * 3 / 15 48000 : 20000 : 12000 2000 : 500 12/20 : 5/20 : 3/20