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In a Canadian IPO issues, the issuing company has incurred $8 million for the flotation costs...

In a Canadian IPO issues, the issuing company has incurred $8 million for the flotation costs and legal fees. The issue involves 45 million shares. As a firm commitment written deal, the underwriter agrees to buy the shares at $19 each and resells to the public at $20.50 per share. What will be the percentage of direct costs required in this deal?

a. 11.5%

b. 10.6%

c. 9.1%

D. 8.4%

PLEASE SHOW ALL OF YOUR CALCULATIONS. THANKS!!!

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Answer #1

Flotation cost is = $ 8 million

Total public issue = 45 million shares

Issue price = $ 20.50

Direct cost= 45 million share * $20.50

=$922.5 million

Direct cost= ($8 million/$922.5 million)*100

=0.08%

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