Financial Report
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Value of the new shares for the IPO
Earning per Share (EPS) = net income / total number of shares
Net income = $2,084,724
Number of shares to be sold = $6,000,000
Earning per Share = $2,084,724/ $6,000,000
= $ 0.35
Advantages of using the underwriting deal
Underwriting deal will ensure success of Pearson Corporation in raising the entire amount as per the target.
The period for waiting for the processing of the deal is not costly and also it is not tedious.
There is a decreased risk and an increased potential once a company uses underwriting.
Disadvantages of underwriting deal
The charges involved in underwriting deal are very high hence a company which uses it and has a poor financial record may face problems in meeting the expenses.
Advantages of Best effort approach
For the company this uses this type of approach end up not spending much in the promotion of the deal at all. This because the agent takes the entire burden. Associated with the deal.
The company is rest assured that the agent cannot take a low price for the shares. Therefore it expects best prices ever.
The company will be advised accordingly by the client whether to sell the share at this moment or if to wait depending on the share market price. If the shares have good price in the market, then it will be advisable for the company to sell its shares at this moment otherwise if the agent foreshadows a better price in future, then the company is deemed to sell the shares when that time reaches.
With a competent agent who has a good experience in best effort approach, the company will be in a good position of getting the best price for its shares.
Disadvantages of using the best effort approach
The company bears all the risks if the underwriter fails to sell all the new issue since the underwriter will have to less his money from what the company receives.
John should go for underwriting deal this is because he will be guaranteed for success in the transaction as opposed to the Best effort approach in which though he may get the best price for the share, he stands at a very high risk if the agent fails to sell all the new