Question 4 Not yet saved Marked out of 1.00 P Flag question ABC Ltd, a high-tech

ID: 1171059 • Letter: Q

Question

Question 4 Not yet saved Marked out of 1.00 P Flag question ABC Ltd, a high-technology company, issues a $32 million IPO with an offer price of $5 per share, underwritten at $4.7 per share. The company's legal fees, ASIC registration fees, and other administrative costs are $380,000. The company's share price increases by $0.75 on the first day. What is the company's total cost of issuing the securities (in millions of dollars to three decimal places; don't use $ sign eg $4.5766 million is 4.577)? (Remember to round the number of shares issued to a whole number) Answer:

Explanation / Answer

Computation of total costs to issue the securities:

Details

Amount

Underwriting cost:
(offer price- underwritten price) *(number of outstanding shares) = ($5-$4.7)*($32million/$5)
= 0.3* 6.4million

$1,920,000

Add: Administration cost

380,000

Add: Changes in price = increase in price *number of outstanding shares = $0.75*6.4million

4,800,000

Total cost

$7,100,000