Question

The Wiley Oakley Co. has just gone public. Under a firm commitment agreement, Wiley Oakley received $21.15 for each of the 6.60 million shares sold. The initial offering price was $23.00 per share, and the stock rose to $29.51 per share in the first few minutes of trading. Wiley Oakley paid $910,000 in legal and other direct costs and $185,000 in indirect costs. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

What was the flotation cost as a percentage of funds raised?

Answer 1

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

• Net amount raised is computed as follows:

= $ 21.15 x 6.60 million shares

= $ 139,590,000

• The direct cost is computed as shown below:

= ($ 23 - $ 21.15) x 6.60 million shares + $ 910,000

= $ 13,120,000

• The indirect cost is computed as shown below:

= ($ 29.51 - $ 23) x 6.60 million shares + $ 185,000

= $ 43,151,000

• Total cost is computed as follows:

= $ 13,120,000+ $ 43,151,000

= $56,271,000

• So the flotation cost as a % of funds raised will be:

= $ 56,271,000 / $ 139,590,000

= 40.31% Approximately