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 $15.60 for each of the 30 million shares sold. The initial offering price was $16.10 per share, and the stock rose to $17.30 per share in the first few minutes of trading. Raven paid $680,000 in direct legal and other costs and $240,000 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))

rev: 09_30_2014_QC_54962

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $15.60 for each of the 30 million shares sold. The initial offering price was $16.10 per share, and the stock rose to $17.30 per share in the first few minutes of trading. Raven paid $680,000 in direct legal and other costs and $240,000 in indirect costs.

Explanation / Answer

Total cost:

Underwriting cost = (Initial issue price-proceeds received)*Number of shared issued

                        = (16.10-15.60)*30

                         = .50*30

                         = $ 15 million or 15,000,000

Legal cost:680,000

Indirect cost :240,000

Total cost = 15,000,000+680,000+240,000

                 = $ 15,920,000

Proceeds received = 30 shares*15.60

                             =468 million or 468,000,000

Floatation cost= 15,920,000/468,000,000

                     = 3.40%

Price raised after trading does not benefit the company in any way.

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