Question

The Westlands Co. has just gone public. Under a firm commitment agreement, the company received $15.70 for each of the 10 million shares sold. The initial offering price was $19.10 per share, and the stock rose to $21.00 per share in the first few minutes of trading. The company paid $740,000 in direct legal and other costs and $270,000 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             %

Answer 1

Flotation cost = ((Initial offering price - Price received by company) x total number of shares + (Direct legal charges + Indirect costs))/ (Initial offering price x Total number of shares)

Flotation cost = ((19.1-15.7)*10000000+(740000+240000))/(19.1*10000000)

Flotation cost = 18.31%

Flotation cost = ((Initial offering price - Price received by company) x total number of shares + (Direct legal charges + Indirect costs))/ (Initial offering price x Total number of shares)

Flotation cost = ((19.1-15.7)*10000000+(740000+240000))/(19.1*10000000)

Flotation cost = 18.31%