Question

ABC Ltd, a high-technology company, issues a $23 million IPO with an offer price of $4 per share, underwritten at $3.76 per share. The company's legal fees, ASIC registration fees, and other administrative costs are $446,000. The company's share price increases by $0.6 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 1

Total number of shares O/s = $23,000,000 / $4.0 per share = 5,570,000 shares

Total underwriting cost = 5,750,000 x ($4.00 - $3.76) = $1,380,000

Company's legal fees, ASIC registration fees, and other administrative costs = $446,000

The Loss due to company's share price increase = 5,750,000 x $0.60 = $3,450,000

Therefore, the company's total cost of issuing the securities = company's total cost of issuing the securities + legal fees, ASIC registration fees, and other administrative costs + Loss due to company's share price increase

= $1,380,000 + $446,000 + $3,450,000

= $5,276,000

= $5.276 Million (in millions of dollars to three decimal places)

The company's total cost of issuing the securities will be $5.276 Million