In a firm commitment public offering, an underwriting investment bank guarantees the sale of the entire issue of securities. The bank agrees to purchase the entire issue from the issuer, and then resells the securities to the public. The issuer is assured of raising the full amount of capital, as the bank bears the risk of not being able to sell all the securities. This method is most appropriate for XYZ Corporation as it ensures that the entire $50 million will be raised. The bank's commitment to buy the entire issue provides the issuer with certainty of funding, which is the primary requirement of XYZ Corporation in this scenario.

Choice A is incorrect. Private placement is not a method of public offering. It involves selling securities to a small group of investors, typically institutional, and not to the general public.

Choice B is incorrect. In a best efforts offering, the underwriters agree to do their best to sell all the securities being offered by the issuer but do not guarantee that all will be sold. This does not ensure that XYZ Corporation will raise its desired capital of $50 million.

Choice D is incorrect. A Dutch auction also does not guarantee that all shares will be sold or that XYZ Corporation will raise its desired capital of $50 million as it depends on a bidding process where price can fluctuate based on demand.

Things to Remember:

• A firm commitment public offering is a type of underwriting where the investment bank guarantees the sale of the entire issue of securities, ensuring the issuer raises the full amount of capital.
• In this arrangement, the investment bank buys the entire issue from the issuer and then resells it to the public. The risk of not being able to sell all the securities is borne by the bank, not the issuer.
• This method provides the issuer with certainty of funding, making it the most suitable option when the goal is to raise a specific, non-negotiable amount of capital.
• The firm commitment approach contrasts with other methods such as best efforts offerings or Dutch auctions, where there is no guarantee of raising the full desired amount.