Question

Kurt’s Campers issued 60,000 shares of stock last week, received $31.54 a share, and incurred direct costs of $328,000. The offer price was $34 a share. Within the first hour of trading, the stock price increased to $36 a share. What was the flotation cost as a percentage of the funds raised?

Multiple Choice

• 38.07%

• 33.49%

• 27.92%

• 36.33%

• 29.04%

Answer 1

Given,

No. of shares = 60000 shares

Last week price = $ 31.54

Direct costs = $ 328000

Increased price = $ 36

Solution :-

Flotation cost increased - last week) No. of)+ Direct Ll Price Price / shares costs = [($36- $ 31,54) 60000 Shades +$378000 = [ ($4,46) 60000 shares] + $378000 = $267600 + $328000 = $595600 Funds raised = (No. of shares x last week Paice) – Direct costs = (Goooo shares & $31.54) - $328000 = $1897400 - $378000 = $ 1564400

Now, Flotation (ost (as a % of funds raised) Flotation cost X 100 Founds raised $595 600 x 100 $1564400 0.3807 x 100 38.07 %