The Raven Co. has just gone public. Under a firm commitment agreement, Raven rec

Question

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $15.60 for each of the 30 million shares sold. The initial offering price was $16.10 per share, and the stock rose to $17.30 per share in the first few minutes of trading. Raven paid $680,000 in direct legal and other costs and $240,000 in indirect costs.

What was the flotation cost as a percentage of funds raised? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $15.60 for each of the 30 million shares sold. The initial offering price was $16.10 per share, and the stock rose to $17.30 per share in the first few minutes of trading. Raven paid $680,000 in direct legal and other costs and $240,000 in indirect costs.

Explanation / Answer

answer is 11.1 %

net fund = 15.6*30 million - 680000-240000 = 467080000

total direct cost = 680000 + 0.5*30 million = 15680000

total indirect cost = 240000 + 1.2*30 million = 36240000

total cost = 15680000 + 36240000 = 51920000

flotation cost = total cost/net fund = 51920000/467080000 = 11.11 %

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