The Raven Co. has just gone public. Under a firm commitment agreement, Raven rec

Question

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $17.30 for each of the 15 million shares sold. The initial offering price was $21.00 per share, and the stock rose to $23.40 per share in the first few minutes of trading. Raven paid $540,000 in direct legal and other costs and $170,000 in indirect costs.

What was the flotation cost as a percentage of funds raised? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

_______%

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $17.30 for each of the 15 million shares sold. The initial offering price was $21.00 per share, and the stock rose to $23.40 per share in the first few minutes of trading. Raven paid $540,000 in direct legal and other costs and $170,000 in indirect costs.

Explanation / Answer

Calculation of floatation Cost:

$540000+ $170000 = $710000

Cost of Security = $ 21* 1.5 = 31.5 million

Floatation cost = $710000 / 31.5 million = 0.0225 or 2.25 %

Note: Cost of security is taken as the offer price and the floatation cost include both direct leagal and indirect cost incurred in the provess of raising funds.

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