Question

When ABC Company went public in September 2008, the offer price was $4.29 per share and the closing price at the end of the first day was $6.79. The company issued 7 million shares. What was the loss to the company due to under-pricing? (in millions of dollars to the nearest two decimal places; don’t use $ sign eg $4.5766 million is 4.58)

Answer 1

Offer price = $ 4.29

Closing price = $ 6.79

Change in price in the first day = $ 6.79 - $ 4.29 = $ 2.5

Number of shares issued = 7,000,000

Loss due to under-pricing = Change in price x Number of shares issued

                                         = $ 2.5 x 7,000,000 = $ 17,500,000 or $ 17.5 Million

Answer: 17.50