Answer:
= $11,670,200/ $41,329,800 x 100 = 28.24%
Explanation:
The question is to compute the flotation cost of the funds raised by Cross Country Movers after going public. Furthermore, it should be presented as a percentage.
The formula therefore, is = Total Direct Costs / Net Amount raised x 100
Step 1: Total Direct Costs
= Direct Costs (legal and others) + Indirect costs + (Initial Offering Price - the amount received for each share x total shares sold) + (Price rise in stock per share - the initial offering price per share x total shares sold)
= $626,000 + $105,000 + 9,667,200+ 1,272,000 = $11,670,200
Step 2: Net Amount Raised
= Amount recieved per share x total shares - Direct and indirect costs
= $19.84 x 2,120,000 shares - $626,000 + $105,000
= 42,060,800- 731,000 = $41,329,800
Step 3: Floatation Cost in Percentage
= $11,670,200/ $41,329,800 x 100 = 28.24%
