Question

Which of following is FAISE about tock pricing and new equity issu. A equity more expensive to issue then the debt from a straight a flotation cost perspective B the market can see equity issuance as an negativne signal. C) stock prices tend to increase when new equity is issued d underwrites offer adince on the pricine of securities hi 4 advantage corp. has gone publie. Under afirm commitment agreement. Advantage recieved $16.85 for each of the 9.5 million shares sold. The initial offering price was $18.20 per share and the stock rore $21.11 per shares in the first few minutes of trading Advantage paid $2,215,000 in direct legal and other costs $865,000 in indirect costs. what is total amount of direct costs A) 18,825,000 8 28.510,000 c) 30,250,000 0 20,255,000

Answer 1

3) Answer- C) False:- Stock price tends to increase when new equity is issued

When new equity is issued the supply of that equity increases in market.As per law of demand : When supply is high price decreases.

4) 12825000

4)

Share price per share Total share offered 16.85 $ 9500000 shares GIVEN Initial offering price Price after first few minutes of trading Legal cost Other cost 18.2 $ 21.11 $ 2215000 $ 865000 $ Total cost of under pricing of share Net amount raised Share price per share * Total shares offered less: Legal & Other cost (1350000+485000) Net amount raised 160075000 3080000 156995000 Intial offering price per share * Total shares offered less: Legal & Other cost (1350000+485000) Net amount without underpricing 172900000 3080000 169820000 Total cost of under pricing of share 12825000