Question

An IPO was offered to the public at $18 a share with the issuing firm receiving $16.50 of that amount. The issuer incurred $750,000 in legal and administrative costs. At the end of the first trading day, the stock was priced at $22.40 a share. What was the total dollar cost, including both direct and indirect costs, of issuing the securities if 225,000 shares were offered?

Answer 1

	The total dollar cost, including both direct and indirect costs, of issuing the securities	$2,077,500
Working Notes:
	The total dollar cost, including both direct and indirect costs, of issuing the securities
	Direct Cost	$750,000
	[legal and administrative costs]
	Indirect cost	$1,327,500
	[Price end of the first trading day - Received per share] x no of shares issued
	[(22.40 -16.50) x 225,000 = $1,327,500]
	Total dollar cost	$2,077,500
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