We will assume that during the process of sale the interest accruing on the bonds amounted to $2500 more than interest paid out on the loans to carry them. We use the word " accruing " advisedly. No interest may actually have been paid on the bonds between the dates within which they were sold. Since they are sold. at 98.50 and interest, on each sale the amount of interest accrued to the date of sale is added to the sale price. We will also assume that all the expenses of the syndicate amount to $27,500. So, add ing the profit from the interest account and deducting the expenses, the syndicate has left $125,000 as syndicate profits.
Although Jones & Company did not sell bonds equal in amount to their participa tion and the others all sold bonds in amounts more than their participations, the syndi cate manager will distribute this $125,000 to the several members strictly according to their participation. The participation of -- Since one tenth of the profits is $12,500, it follows that the syndicate manager will dis tribute to Brown & Company.. $50,000 Jones & Company.. 37,500 Smith & Company 25,000 Robinson & Company 12,500 $125,000 Again, we must remind ourselves that though these sums are profits of the syndi cate, the several members cannot count them as net profits. Each member has had to bear selling expenses, including perhaps some ad vertising, certainly office overhead and the pay and expenses of salesmen.
If, instead of proving a profitable transac tion, the syndicate should find that it could not sell the bonds at 98.50, but that, on the contrary, financial conditions had become such that it could not sell the bonds for as much as it paid for them, what would hap pen? We will assume that the syndicate meets such a condition of affairs. If the syn dicate is not satisfied simply to hold the bonds in expectation of a better market, when it can sell them without a loss, it can choose between lowering the selling price to one at which it can "move" the bonds now or distributing the unsold bonds to the mem bers and dissolving the syndicate. Ordinarily the members will not want to continue the syndicate to hold the bonds for a better market. The better market is always prob lematical and may well seem too remote. Some members may want to liquidate the account and take their loss. The syndicate
is not so likely to lower the selling price as it is to distribute the bonds. Some members may hold the opinion that the market will improve and feel reluctant to take a loss. Various considerations will determine the decision. Suppose the syndicate determines to distribute the bonds and dissolve. We will assume that it has sold $2,000,000 of the total issue of $5,000,000. Again, for the pur pose of this distribution it does not make any difference how many bonds each mem ber has sold; the unsold bonds will be dis tributed to the members in proportion to their participations. To show more specifi cally the working of the transaction, we will state an assumption of the amount of bonds each member has sold, and say that Brown & Company have sold $200,000 Jones & Company have sold 300,000 Smith & Company have sold 900,000 Robinson & Company have sold 600,000 $2,000,000 Robinson & Company have sold more than the amount of their participation; Smith & Company, almost the amount; Jones & Com pany, only one fifth; and Brown & Company, only one tenth of their participations. Of the total issue $3,000,000 of bonds remain unsold. Just as in the case of the profits these will go to the members in proportion to their participations. Brown & Company will get four tenths; Jones & Company, three tenths; Smith & Company, two tenths. Al though Robinson & Company have already sold much in excess of their participation, they will nevertheless have to "take up" one tenth of the unsold bonds. So the unsold bonds will be distributed as follows: — With an original participation of only $500, 000, Robinson & Company have become re sponsible for a total of $900,000 of bonds. On the $2,000,000 of bonds sold the syndi cate made three points between the purchase price and the selling price, a total of $60,000. Let us assume a loss on the interest account in carrying and expenses to a total of $30,000. The manager would distribute the $30,000 net syndicate profit in this way: Brown & Company, $12,000; Jones & Company, $9000; Smith & Company, $6000; Robinson & Com pany, $3000. The joint account is now closed. The several members are carrying on their own account the bonds distributed to them and may dispose of them in such ways and at such prices as they see fit.