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 $18.40 for each of the 15 million shares sold. The initial offering price was $20.00 per share, and the stock rose to $25.60 per share in the first few minutes of trading. Raven paid $520,000 in direct legal and other costs and $160,000 in indirect costs.

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

Flotation cost %

Explanation / Answer

Net received=18.4*15000000-520000-160000=275320000
Underwirter's spread=20-18.4=1.6
Total direct costs=520000+1.6*15000000=24520000
Indirect costs=(25.6-20)*15000000=84000000
Total costs=84000000+24520000=108520000
Floatation costs=108520000/275320000=39.4159%

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