Question

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $21.39 for each of the 20 million shares sold. The initial offering price was $23 per share, and the stock rose to $28.41 per share in the first few minutes of trading. Raven paid $950,000 in direct legal and other costs and $320,000 in indirect costs. What was the flotation cost as a percentage of funds raised?

Answer 1

Answer: 33.2%

Explanation:

Floatation costs percentage = Total costs / Net amount received

Net amount received = Total received - Direct legal - Indirect cost

= (21.39 * 20 million) - 950,000 - 320,000

= $‭426,530,000‬

Total Cost = 950,000 + ((Initial offering price - Amount received) * 20 million) + 320,000 + ((Stock appreciation - initial offering price) * 20 million)

= $141,670,000‬

Floatation cost = 141,670,000‬/ 426,530,000

= 33.2%