Question

An IPO was offered to the public at $18 a share with the issuing firm receiving $16.50 of that amount. The issuer incurred $750,000 in legal and administrative costs. At the end of the first trading day, the stock was priced at $22.40 a share. What was the total dollar cost, including both direct and indirect costs, of issuing the securities if 225,000 shares were offered?

Answer 1

Answer: Total dollar cost along with direct and indirect cost is $2,077,500.

Calculation notes:

Calculation of indirect cost = (actual stock price - issued price amount received) x no of shares

(22.40-16.50) x 225000

=$1327500

Given that legal and administrative cost which is direct cost as $750000.

Total dollar cost= Direct cost + Indirect cost

=750000+1327500

=$2077500