Moonscape has just completed an initial public offering. The firm sold 4 million

Question

Moonscape has just completed an initial public offering. The firm sold 4 million shares at an offer price of $12 per share. The underwriting spread was $.40 a share. The price of the stock closed at $18 per share at the end of the first day of trading. The firm incurred $400,000 in legal, administrative, and other costs. What were flotation costs as a fraction of funds raised? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Moonscape has just completed an initial public offering. The firm sold 4 million shares at an offer price of $12 per share. The underwriting spread was $.40 a share. The price of the stock closed at $18 per share at the end of the first day of trading. The firm incurred $400,000 in legal, administrative, and other costs. What were flotation costs as a fraction of funds raised? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

Answer:

Underwriting costs for Moonscape:

         Underwriting spread: $0.40 ´ 4 million =        $1.6 million

         Underpricing: $6.00 ´ 4 million =                  $24.0 million

         Other direct costs =                                        $0.4 million

               Total =                                                          $26 million

         Funds raised = $12 * 4 million = $48 million

Flotation cost/Funds raised=($26/$48)*100=54.17%

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