The Collins Co. has just gone public. Under a firm commitment agreement, Collins
ID: 2758887 • Letter: T
Question
The Collins Co. has just gone public. Under a firm commitment agreement, Collins received $33.10 for each of the 4.21 million shares sold. The initial offering price was $35.50 per share, and the stock rose to $43.20 per share in the first few minutes of trading. Collins paid $916,000 in legal and other direct costs and $272,000 in indirect costs. (Enter your answer as directed, but do not round intermediate calculations.)
What is the net amount raised?
What are the total direct costs?
What are the total indirect costs?
What are the total costs?
What was the flotation cost as a percentage of funds raised?
What are the total costs?
What was the flotation cost as a percentage of funds raised?
Explanation / Answer
Net amount raised = no. of shares x prie per share received
= 4,210,000 x 33.10
= 139,351,000
Total direct cost = direct expenses + (offering price – price received)x shares
= 916,000 + (35.50 – 33.10) x 4,210,000
= 11,020,000
Total indirect cost= indirect exp. + (ending price – offering price ) x shares
= 272,000 + (43.20 -35.50) x 4210,000
= 32,689,000
Total cost = 32,689,000 + 11,020,000
= 43,709,000
Flotation cost % = total cost/ total amount raised
= 43,709,000 / 139,351,000
= 31.37%
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