Bellevue Co. has just gone public. Under a firm commitment agreement, the company received $17.40 for each of the 20 million shares sold. The initial offering price was $19.50 per share and the stock rose to $21.60 per share in the first few minutes of trading. The company paid $600,000 in direct legal and other costs and $200,000 in indirect costs. What was the flotation cost as a percentage of funds raised? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Net amount raised = (20,000,000 shares)($17.40) – $600,000 – $200,000 = $347,200,000
Total direct costs = $600,000 + ($19.50 – $17.40)(20,000,000 shares) = $42,600,000
Total indirect costs = $200,000 + ($21.60 – $19.50)(20,000,000 shares) = $42,200,000
Total costs = $42,600,000 + $42,200,000 = $84,800,000
Flotation cost percentage = $84,800,000 / $347,200,000 = 0.2442 or 24.42%
Bellevue Co. has just gone public. Under a firm commitment agreement, the company received $17.40 for...
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