Question

Fleming Educational Software, Inc., is selling 775,000 shares of stock in an auction IPO. At the end of the bidding period, Fleming’s investment bank has received the following bids. What would be the price for share? What would be the amount raised? If the price rises 16% the first trading day, how much money was left at the table?

PRICE	NUMBER OF SHARES
$8.00	25,000
$7.75	100,000
$7.50	75,000
$7.25	150,000
$7.00	150,000
$6.75	275,000
$6.50	125,000

Answer 1

775,000 shares is the total offered shares. We need to find a clearing price for the said amount of shares.

PRICE	NUMBER OF SHARES
$8.00	25,000
$7.75	100,000
$7.50	75,000
$7.25	150,000
$7.00	150,000
$6.75	275,000

Total shares = 775000; we need weighted average of price to find the ipo price;

weighted avg. price = (($8.00*25000)+($7.75*100000)+($7.5*75000)+($7.25*150000)+($7*150000)+($6.75*275000))/775000=$5.78

Amount raised will be IPO price* no of shares = $5.78*775000=$4.48 million

If price rose by 16% on 1 st day, money left on the table will be 0.16*$4.48 million=$0.72 million