Answer:
11.14%
Explanation:
Fund raised is the actual amount raised when the share is offered for sale in the market. Since the price of the shares fluctuated, this can be calculated by getting the average of $19.40 per share which is the initial offering price and $22.40 per share which the stock rose to in the first few minutes of trading and then multiply it by the 30 million shares sold. This calculated as:
Fund raised = [($19.40 + $22.40) ÷ 2] × 30,000,000
= $20.90 × 30,000,000
= $627,000,000
Amount received by Raven can be calculated by multiplying the amount received per share of $18.60 by the 30 million shares sold. This is given as follows:
Amount Received by Raven = $18.60 × 30,000,000
= $558,000,000
Flotation cost is the addition of all expenses a company spent when it offers its securities for sale to the public. These expenses include underwriting fees, registration fees, and legal fees.
From the question, the floating cost is therefore the addition of direct legal and other costs of $640,000 and indirect costs of $220,000 paid by Raven as well as the difference between the amount raised and the amount received by Raven (i.e. $627,000,000 - $558,000,000 = $69,000,000). This floating cost calculation is given as follows:
Floating cost = $640,000 + $220,000 + $69,000,000
= $69,860,000
The flotation cost as a percentage of funds raised = ($69,860,000 ÷ $627,000,000) × 100
= 0.1114 × 100
= 11.14%
Therefore, the flotation cost as a percentage of funds raised is 11.14%.
