Question

A mid-sized firm plans to issue 10 million shares during an IPO. The underwriter plans to sell shares at $22.55; however, many investors believe the company should be valued at $30.25 per share. If the underwriter charges a $2.0 million fee to undertake the IPO, how much will the firm raise in the IPO

Answer 1

Answer: $223,500,000

Explanation:

An Initial Public Offering is the first issuance of a Company's stock to the world. It is usually done through an Investment bank that underwrites the issuing and sells it at a price that they feel is right based on their Research.

In this scenario, the Underwriter thinks the amount that the stock should be offered at is $22.55 and so that is the price it will be offered at.

10,000,000 shares are to be offered.

$2,000,000 is to be taken as fees by the Underwriter.

The total money the company will make will therefore be,

= ( No. Of shares offered * Share Price) - Underwriting Fee

= (10,000,000 * 22.55) - 2,000,000

= 225,500,000 - 2,000,000

= $223,500,000