The Huff Co.has just gone public.Under a firm commitment agreement,Huff received $21.50 for each of the 6 million shares sold.The initial offering price was $23.65 per share,and the stock rose to $31.42 per share in the first few minutes of trading.Huff paid $1,260,000 in direct legal and other costs,and $390,000 in indirect costs.The flotation costs were what percentage of the funds raised?
A)38.56 percent
B)40.32 percent
C)41.68 percent
D)48.03 percent
E)49.09 percent

Question

Quizplus · Accepted Answer

Net amount raised = 6m ($21.50) - $1,260,000 - $390,000 = $127,350,000Total direct costs = $1,260,000 + ($23.65 - $21.50) (6m) = $14,160,000Total indirect costs = $390,000 + ($31.42 - $23.65) (6m) = $47,010,000Total costs = $14,160,000 + $47,010,000 = $61,170,000Flotation cost percentage = $61,170,000/$127,350,000 = 48.03 percent