Question

Green Lantern Enterprises has just completed an initial public offering. The firm sold 1,500,000 new shares (the primary offering). In addition, existing shareholders sold 325,000 shares (the secondary issue). The new shares were offered to the public at $18.00 per share and underwriters received a spread of $1.18 a share. The legal, administrative, and other costs were $500,000 and were split proportionately between the company and the selling stockholders. How much money did the company receive before paying its proportion of the direct costs?

Answer 1

Green Lantern Enterprises received $25,230,000 from the IPO before paying its proportion of the direct costs. This is calculated by multiplying the number of shares sold in the primary offering (1,500,000 shares) by the offer price per share ($18.00), then subtracting the product of the number of shares and the underwriter's spread per share.

Step-by-step explanation:

To calculate the amount of money Green Lantern Enterprises received from its initial public offering (IPO) before paying its proportion of the direct costs, we start by multiplying the number of new shares sold (the primary offering) by the offer price. This will give us the gross proceeds from the IPO. The company sold 1,500,000 new shares at $18.00 per share.

The calculation is as follows:

• 1,500,000 shares × $18.00 per share = $27,000,000 gross proceeds

The underwriters received a spread of $1.18 per share, so to calculate the net proceeds before direct costs, we subtract the underwriting spread from the gross proceeds:

• $27,000,000 gross proceeds - (1,500,000 shares × $1.18 spread) = $25,230,000 net proceeds before direct costs

So, the company received $25,230,000 before paying its proportion of the direct costs.