Question

Barnegat light sold 200,000 shares in an initial public offering. the underwriter's explicit fees were $90,000. the offering price for the shares was $35, but immediately upon issue, the share price jumped to $43. what is the best estimate of the total cost to barnegat light of the equity issue?

Answer 1

The best estimate of the total cost to Barnegat light can be calculated by summing up the explicit fee and the under pricing cost of the share. Under pricing occurs here because the initial public offering of $35 is lower than the market value $43.

Total cost = $90,000 + ($43 - $35) * 200,000

Total cost = $1,690,000