Sterling, Cooper, Draper, Price would like to go public to raise $58 million to

Question

Sterling, Cooper, Draper, Price would like to go public to raise $58 million to support expected growth. Their investment bank charges the following:

7.7% underwriting spread for a firm commitment

$210,128 in legal fees

The underwriter feels that the IPO will be priced at $29.95 per share. How many shares must be issued to net the company the proceeds it needs to fund its future investment (Hint: The total amount issued must cover the required net proceeds plus all fees and the underwriter's spread)?

Explanation / Answer

Money need to be raise    58,000,000.00 Legal fees          210,128.00 Total Money to be raised    58,210,128.00 Under Writing fees 7.70% It means co will get before paying legal fees = 100% - 7.70% = 92.30% Total Money To be raised = 58210,128/92.30% Total Money To be raised = 63,066,227.52 No of shares to be issued = 63066,227.52/29.95 No of shares to be issued = 2105717.11 Statement showing computations Particulars Amount Share Price                     29.95 No of shares       2,105,717.11 Total Money raised    63,066,227.44 Fees        (210,128.00) Underwriting charges @7.7%    (4,856,099.51) Net Money    57,999,999.93

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