Calculating Costs of Issuing Stock Turbo Technology Corp. recently went public w

Question

Calculating Costs of Issuing Stock Turbo Technology Corp. recently went public with an initial public offering of 3.00 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $7.50 per share and the underwriter's spread was 9 percent of the gross proceeds. Turbo also paid legal and other administrative costs of $200,000 for the IPO. Calculate the gross proceeds per share received by Turbo from the sale of the 3.00 million shares of stock.

a). $8.25

b). $7.57

c). $8.32

d). $7.50

Explanation / Answer

Net proceeds per share = 7.5

Total net proceeds = 7.5*3 = 22.5 mil

Let gross proceeds be G

(G + admin cost )*9% = 22.5

Admin cost = 0.2 millions

On solving , G = 24.8 mil

Per share gross proceeds = Total gross proceed/No. of shares

= 24.8/3 = 8.25

Option A

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