Question

The Wiley Oakley Co. has just gone public. Under a firm commitment agreement, the company received $21.65 for each of the 6.65 million shares sold. The initial offering price was $23.50 per share, and the stock rose to $30.01 per share in the first few minutes of trading. The company paid $915,000 in legal and other direct costs and $190,000 in indirect costs. What was the flotation cost as a percentage of funds raised?

Answer 1

Answer :

The flotation cost as a % of funds raised is computed as follows:

Net amount raised = $ 21.65 * 6.65 million shares

= $ 143,972,500

Total direct costs = ( $ 23.50 - $ 21.65 ) * 6.65 million shares + $ 915,000

= $ 13,217,500

Total indirect costs = ( $ 30.01 - $ 23.50 ) * 6.65 million shares + $ 190,000

= $ 43,481,500

Total costs = $ 13,217,500 + $ 43,481,500

= $ 56,699,000

Therfore,

The flotation cost as a % of funds raised will be:

= Total costs / Net amount raised

= $ 56,699,000 / $ 143,972,500

= 39.38% (Approx.)