Question

ABC Ltd, a high-technology company, issues a $15 million IPO with an offer price of $1.50 per share, underwritten at $1.40 per share. The company's legal fees, ASIC registration fees, and other administrative costs are $279,000. The company's share price increases by $0.1 on the first day. What is the company's total cost of issuing the securities? In millions ( round the number of shares issued to a whole number)

Answer 1

Following are the cost associated with IPO

1) Underwritting cost

2) Company's legal fees, ASIC registration fees, and other administrative costs

3) Underpricing

Thus Comapny's total cost of issuing security = Underwritting cost+ Company's legal fees, ASIC registration fees, and other administrative costs+ Underpricing

No of shares issued = 15/1.5 = 10 million shares

- Underwritting cost = (1.5-1.40) x 10 million shares

= 0.1 x 10 million shares

= $1 million

- Company's legal fees, ASIC registration fees, and other administrative costs = $279000 (Given)

- Underpricing = (Stock price at end of listing day - IPO offered price) x IPO size

= 0.1 x 10 million shares

= $ 1 million

Thus Comapny's total cost of issuing security = $1 million + $ 0.279 million + $1 million

= $2.279 million