Deep Hollow Oil issued 120,000 shares of stock last week,received $27.45 a share,and incurred direct costs of $287,000.The offer price was $30 a share.Within the first hour of trading,the stock price increased to $36 a share.What was the flotation cost as a percentage of the funds raised?

Question

Quizplus · Accepted Answer

Total costs = $287,000 + [($36 - 30)× 120,000] + [($30 - 27.45)× 120,000] = $1,313,000Amount raised = ($27.45 × 120,000)- $287,000 = $3,007,000Flotation cost percentage = $1,313,000/$3,007,000 = .4366,or 43.66%

Deep Hollow Oil Issued 120,000 Shares of Stock Last Week,received