The Raven Co. has just gone public. Under a firm commitment agreement, Raven received 18.50 for...
The Raven Co. has just gone public. Under a firm commitment agreement, Raven received 18.50 for each of the 5 million shares sold. The initial offering price was $20.35 per share, and the stock rose to $26.25 per share in the first few minutes of trading. Raven paid $1,150,000 in direct legal and other costs, and $403,000 in indirect costs. What was the flotation cost as a percentage of funds raised?
Homework Answers
Net amount raised =18.50*5000000 =92500000-1150000-403000 =90947000
share offered at price =20.35
amount received per share =18.50
underwriter spread =20.35-18.50=1.85 =1.85 per shares
total underwriter spread =per share spread*no of shares offered
1.85*5000000 = 9250000
total direct cost =9250000+1150000 =10400000
total direct flotation cost =10400000
indirect flotation cost =indirect cost given +price appreciation
total indirect cost =403000+(26.25-20.35)*5000000 =29903000
total flotation cost =direct cost +indirect cost =10400000+29903000=40303000
total flotation cost as a percentage of fund raised =(40303000/90947000)*100
=44.314%
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