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ABC Ltd., a technology company, issues a $40 million IPO providing proceeds to ABC of $4.5...

ABC Ltd., a technology company, issues a $40 million IPO providing proceeds to ABC of $4.5 per share, from an offer price to the public of $5 per share. The company's legal fees, ASIC registration fees, and other administrative costs are $361,000. The company's share price increases 20 per cent on the first day. What is the total cost to the issuer of the IPO (in millions of dollars to the nearest three decimal places; don’t use the $ sign eg 7.897)?

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Answer #1

total cost to the issuer of the IPO = value of discount given on offer price + legal & registration fees and other administrative costs

first we calculate no. of shares issued by the company.

no. of shares issued = IPO value/offer price per share = $40 million/$5 = 8 million shares

value of discount given on offer price = no. of shares issued*discount per share = 8 million*($5 - $4.5) = 8 million*$0.50 = $4 million

total cost to the issuer of the IPO = $4 million + $0.361 million = $4.361 million

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