Question

NewCorp sold 180,000 shares in an initial public offering. The underwriter's explicit fees were $66,000. The offering price for the shares was $36, but immediately upon issue, the share price jumped to $49. What is the best estimate of the total cost to Barnegat Light of the equity issue

Answer 1

$2,406,000

Step-by-step explanation:

Given

Shares sold=180,000

Explicit fees=$66,000

Offering price=$36

Share price jumped to=$49

Underpricing per share=$49-$36

=$13

Solution

Estimate of total cost=explicit fees+(underpricing per share)×sold shares

=$66,000+($49-$36)×180,000

=$66,000+($13)×180,000

=$66,000+$2,340,000

=$2,406,000

Answer 2

$ 2,406,000

Step-by-step explanation:

Given that

Shares sold = 180,000

Underwriter explicit fees = 66000

Offering price of shares = 36

Final price of share = 49

Total cost = 66,000 + (49 - 36)180,000

= 66,000 + 13 × 180,000

= 66,000 + 2,340,000

= $ 2,406,000

Total cost = $2406000