Q:5 ZAMIL, an investment banking firm has proposed two types of payment plans for the IPO being considered by Dakota Drilling, a manufacturer of oil drilling equipment. The first is a firm commitment of \( \$ 5,000,000 \). The second is a best effort in which ZAMIL 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 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?

Under the best efforts method, ZAMIL will earn \( \$ 4.00 \) for every share sold, up to a maximum of \( \$ 2,000,000 \). If they sell \( 80\% \) of the \( 500,000 \) shares, that means they will sell \( 0.80 \times 500,000 = 400,000 \) shares. Since they receive \( \$ 4.00 \) per share, the total earnings would be \( 400,000 \times 4 = \$ 1,600,000 \). This amount is below the maximum of \( \$ 2,000,000 \), so ZAMIL earns \( \$ 1,600,000 \) under the best efforts method. To add a bit of flair, you can think of ZAMIL as the ultimate cheerleader for Dakota Drilling, showcasing their IPO with all the enthusiasm, but with a twist! Instead of guaranteeing a huge score with firm commitment, they're playing the field—hoping to sell enough shares, and even though they come up short of the maximum earnings, they still nab a hearty \( \$ 1,600,000 \) for their efforts. A win-win in the world of investment banking!