Question

The Boeing Company has just gone public under a firm commitment agreement and sold (i.e. floated) 4.1 million shares to the public. Boeing stock went public (i.e. begin to trade over the exchange) at $34.40. The first day closing price of Boeing stock was $41 per share. Boeing paid $905,000 in legal and other direct costs, $250,000 in indirect costs, and an underwriter’s fee of $2.40 per share. Required: i. Compute the net amount raised by the Boeing Company as a result of the IPO. ii. Compute the Underpricing cost or money left on the table.

Answer 1

Dear Student

Please note the solution

(i) Net Amount raised by Boieng Company

Particulars	Calculation	Amount
Issue Amount	4.1 Million * $ 34.40 per share	141,040,000
Less: Legal Cost		(905,000)
Less: Other Indirect Cost		(250,000)
Underwriter fees	4.1 Million * $ 2.40 per share	(9,840,000)
	Net Proceeds	130,045,000

(ii) Concept

In initial IPO, leaving money on table means first trading day returns earned by investors. It is measure by difference between closing price of first day and issue price multiplied by number of shares issued.

Particulars	Amount
Closing price	41
Less: Issue Price	(34.40)
Difference	6.60
* Number of Shares	4.10 Million
Money Left on table.	6.60 * 4.10 Million = $ 2,70,60,000

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