Stump, Inc. issues a $66 million IPO priced at $17 per share, and the offering price to the public is $22 per share. The firm's legal fees, SEC registration fees, and other administrative costs are $350,000. The firm's stock price increases 15 percent on the first day. What is the firm's total cost of issuing the securities?

Question

Quizplus · Accepted Answer

The total number of shares offered is $66,000,000 / $17 per share = 3,882,352 shares.
The total amount raised from the IPO is 3,882,352 shares x $22 per share = $85,412,344.
The total costs of issuing the securities is $350,000 + (3,882,352 shares x $17 per share) = $422,350,184.
The net proceeds received by the company is $85,412,344 - $422,350,184 = -$336,937,840 (negative because the costs are higher than the proceeds).
Since the stock price increases 15%, the market capitalization of the company is 3,882,352 shares x $25.30 (15% increase from the offer price) = $98,216,177.6.
Therefore, the total cost of issuing the securities is $422,350,184 + ($98,216,177.6 - $85,412,344) = $25,254,018.6, which is closest to option C.