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 3.19 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $8.45 per share and the underwriter's spread was 8 percent of the gross proceeds. Turbo also paid legal and other administrative costs of $390,000 for the IPO. Calculate the gross proceeds per share received by Turbo from the sale of the 3.19 million shares of stock. $9.32 $8.45 $9.20 $8.57

Explanation / Answer

Legal and administrative cost for Turbo= $390,000

Therefore, Legal and administrative cost for Turbo per share of 3.19 million shares

= 390,000/ 3190000

= $0.12/ share

Let the gross profitper share = P

The underwriter keeps 8% of the gross profit with itself and passes on 92% ( or 0.92 proportion) of the proceeds to Turbo technology.

Therefore Turbo technology receives 0.92P per share.

However 0.92P per share is not the net proceeds for turbo Technology since Turbo needs to pay administrative cost from this proceed.

As calculated above , Legal and administrative cost for Turbo is 0.12 per share.

Therefore , net proceeds per share = 0.92P – 0.12

Since , it is mentioned that net proceeds per share is$8.45

Therefore , 0.92.P – 0.12 = 8.45

Or, 0.92.P = 8.57

Or, P = 8.57/0.92

Or, P = 9.3152 ( 9.32 ROUNDED TO 2 DECIMAL PLACES )

GROSS PROCEEDS PER SHARE RECEIVED BY TURBO = $9.32

GROSS PROCEEDS PER SHARE RECEIVED BY TURBO = $9.32

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.