Moonscape has just completed an initial public offering. The firm sold 1 million

Question

Moonscape has just completed an initial public offering. The firm sold 1 million shares at an offer price of $10 per share. The underwriting spread was $.60 a share. The price of the stock closed at $16 per share at the end of the first day of trading. The firm incurred $200,000 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.) Costs as percent of funds raised %

Explanation / Answer

Other expenses =$200,000 =$0.2 millon

underwriting spreed =($0.60)(1m) =$0.60 millon
cost of underpricing absorbed =($16-$10)(1m) =$6 millon
Floating costs =$0.60m+$0.2m+$6m =$6.8 millon
Funds raised =($10)(1m) =$10 millon
Fraction of floating costs = $6.8m/$10m =0.68 or 68%

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