Question

How do you solve part c (how would you get to that solution)? Superman Enterprises has...

How do you solve part c (how would you get to that solution)?

Superman Enterprises has just completed an initial public offering. The firm sold 2,700,000 new shares (the primary offering). In addition, existing shareholders sold 150,000 shares (the secondary issue). The new shares were offered to the public at $13.50 per share and underwriters received a spread of $1.05 a share. The legal, administrative, and other costs were $425,000 and were split proportionately between the company and the selling stockholders.

a)How much money did the company receive before paying its proportion of the direct costs?   
33,615,000

b)Suppose that on the first day of trading, the price of Superman's stock is $16.30 per share. What is the cost to the firm from the underpricing?   
7,560,000

c)Given that the company receives $33,615,000 from the issue before paying the direct costs and that the cost from underpricing is $7,560,000, what are the total costs of the issue to the firm?
Correct response: 10,797,632

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