Question

ABC Ltd, a high-technology company, issues a $26 million IPO with an offer price of $3 per share, underwritten at $2.82 per share. The company's legal fees, ASIC registration fees, and other administrative costs are $487,000. The company's share price increases by $0.45 on the first day. What is the company's total cost of issuing the securities (in millions of dollars to three decimal places; don’t use $ sign eg $4.5766 million is 4.577)? (Remember to round the number of shares issued to a whole number) Answer:

Answer 1

Answer : $5.947 million

Calculation :

Total cost = Underwriting cost + Legal fees, ASIC registration fees, and other administrative costs + Underpricing cost.

Number of shares issued = Issue amount / Offer price per share.

Number of shares issued = $26 million / $3 = 8666666.666666 or 8,666,667

Underwriting cost = Shares issued * (Offer price - Underwritten price)

Underwriting cost = 8,666,667 * ($3 - $2.82) = $1,560,000.

Underpricing cost =  increase in share price * shares issued.

Underpricing cost = $0.45 * 8,666,667 = $3,900,000.

Total cost = $1,560,000 + $487000 + $3,900,000

total cost = $5,947,000 or $5.947 million.