The Collins Co. has just gone public. Under a firm commitment agreement, Collins
ID: 2735953 • Letter: T
Question
The Collins Co. has just gone public. Under a firm commitment agreement, Collins received $32.40 for each of the 4.14 million shares sold. The initial offering price was $34.80 per share, and the stock rose to $41.80 per share in the first few minutes of trading. Collins paid $909,000 in legal and other direct costs and $258,000 in indirect costs. (Enter your answer as directed, but do not round intermediate calculations.)
What is the net amount raised? (Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to the nearest whole number (e.g., 1,234,567).)
What are the total direct costs? (Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to the nearest whole number (e.g., 1,234,567).)
What are the total indirect costs? (Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to the nearest whole number (e.g., 1,234,567).)
What are the total costs?(Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to the nearest whole number (e.g., 1,234,567).)
What was the flotation cost as a percentage of funds raised? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
The Collins Co. has just gone public. Under a firm commitment agreement, Collins received $32.40 for each of the 4.14 million shares sold. The initial offering price was $34.80 per share, and the stock rose to $41.80 per share in the first few minutes of trading. Collins paid $909,000 in legal and other direct costs and $258,000 in indirect costs. (Enter your answer as directed, but do not round intermediate calculations.)
Explanation / Answer
Number of share issue = 4.14 million
Offer price per share = $34.80
Received price per share = $32.40
Legal Charge = $909,000
a.
Net Amount raise = Number of share issue × Offer price per share
= 4.14 million × $34.80
= $144.072 million
Net Amount raise is $144.072 million.
b.
Direct cost in IPO are cost associated in Legal charge, SEC filling cost.
So direct cost in IPO is $909,000.
c.
Net amount Raise = $144.072 million
Net Amount received = Number of share issue × received price per share
= 4.14 million × $32.40
= $134.136 million
Net Amount received is $134.136 million.
Net indirect cost = Amount raise – Amount Received – Direct cost
= $144.072 million – $134.136 million - $909,000
= $9.027 million
Net Indirect cost in IPO is $9.027 million.
d.
Total Cost Associated with IPO is summation of direct cost and indirect cost.
Total Cost = Direct Cost + indirect cost
= $909,000 + $9.027 million
= $9.936 million
Total cost Associated with IPO is $9.936 million.
e.
Flotation cost = Total Cost = $9.936 million
Net amount Raise = $144.072 million
Flotation cost as percentage of total fund raise is calculated below:
Floatation cost = $9.936 million / $144.072 million
= 6.90%
Flotation cost is 6.90%.
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