Calculating Costs of Issuing Stock Turbo Technology Corp. recently went public w

Question

Calculating Costs of Issuing Stock Turbo Technology Corp. recently went public with an initial public offering of 3.14 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $8.20 per share and the underwriter's spread was 8 percent of the gross proceeds. Turbo also paid legal and other administrative costs of $340,000 for the IPO. Calculate the gross proceeds per share received by Turbo from the sale of the 3.14 million shares of stock.

a) $8.92

b) $9.03

c) $8.20

d) $8.31

Explanation / Answer

Net proceeds = 8.2

Proceeds including underwriter fee = 8.2 / (1-8%) = 8.913

Per share legal costs = 340000 / 3140000 = 0.108

Gross proceeds = 8.913 + 0.108 = 9.02 (Option B)

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