Question

the telwar company has just gone public. under a firm commitment agreement, the company received $33.30 for each of the 4.23 million shares sold. the initial offering price was $35.70 per share, and the stock rose to $43.60 per share in the first few minutes of trading. the company paid $918,000 in legal and other direct costs and $276,000 in indirect costs. what was the flotation cost as a percentage of funds raised? note: do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

Answer 1

The flotation cost as a percentage of funds raised for Telwar company's IPO is 0.85% after accounting for both legal and indirect costs associated with the stock issuance.

Step-by-step explanation:

The question pertains to calculating the flotation cost as a percentage of funds raised for the company Telwar during their initial public offering (IPO). The flotation cost includes legal and other direct costs as well as indirect costs associated with the issuance of the stocks.

To determine the total cost, we add both direct and indirect costs. The legal and other direct costs are $918,000, and the indirect costs are $276,000. This yields a total cost of:

$918,000 + $276,000 = $1,194,000.

Next, we calculate the funds raised by multiplying the number of shares sold by the price the company received per share:

4.23 million shares × $33.30 = $140,859,000.

Finally, to find the flotation cost percentage, we divide the total costs by funds raised and multiply by 100:

($1,194,000 / $140,859,000) × 100 = 0.8478% or 0.85% when rounded to two decimal places.