Question

The Wiley Oakley Co. has just gone public. Under a firm commitment agreement, the company received...

The Wiley Oakley Co. has just gone public. Under a firm commitment agreement, the company received \$20.65 for each of the 6.55 million shares sold. The initial offering price was \$22.50 per share, and the stock rose to \$29.01 per share in the first few minutes of trading. The company paid \$905,000 in legal and other direct costs and \$180,000 in indirect costs. What was the flotation cost as a percentage of funds raised? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Flotation cost percentage _______ %

Net amount raised = (6,550,000 shares)(\$20.65) – \$905,000 – \$180,000 = \$134,172,500

Total direct costs = \$905,000 + (\$22.50 – \$20.65)(6,550,000 shares) = \$13,022,500

Total indirect costs = \$180,000 + (\$29.01 – \$22.50)(6,550,000 shares) = \$42,820,500

Total costs = \$13,022,500 + \$42,820,500 = \$55,843,000

Flotation cost percentage = \$55,843,000 / \$134,172,500 = 0.4162 or 41.62%

> This is the correct way to find the answer!

Justice7 Fri, Dec 3, 2021 8:37 AM

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