An IPO is priced at $25 per share with 10 million shares offered. The underwriters exercise the full 15% overallotment option. How many total shares are sold and what are the total gross proceeds?

Why A — 11.5 million shares and $287.5 million

The overallotment option adds 15% of the original 10 million shares, which equals 1.5 million additional shares, for a total of 11.5 million shares. At $25 per share, the total gross proceeds are 11.5 million x $25 = $287.5 million. The overallotment shares are sold at the same offering price as the original shares. The underwriters would exercise this option when the stock is trading above the offering price, as it allows them to cover their short position by purchasing shares from the issuer rather than in the open market.