Question

Publishing recently completed its IPO. The stock was offered at a price of $ 13.81 per share. On the first day of​ trading, the stock closed at $ 18.17 per share. If Felton Publishing paid an underwriting spread of 7.3 % for its IPO and sold 12 million​ shares, what was the total cost​ (exclusive of​ underpricing) to it of going​ public?

Answer 1

The cost of IPO is $ 12,097,560.00

Step-by-step explanation:

The total cost of the company going public is the actual costs incurred on the IPO(the underwriting spread) plus the implicit cost (the excess of the market price over the IPO price on the first day of trading).

However, the requirement in this question is that we should exclude the cost of under-pricing

The underwriting spread is computed as follows:

underwriting cost=Offered price *volume*underwriting %

offered price is $13.81

volume of shares is 12,000,000

underwriting % is 7.3%

underwriting cost=$13.81*12,000,000*7.3%

=$ 12,097,560.00

This is cost of the IPO without considering the under-pricing cost