Pau, Inc. issues a $38.6 million IPO priced at $12.50 per share, and the offering price to the public is $19.30 per share. The firm's legal fees, SEC registration fees, and other administrative costs are $270,000. The firm's stock price increases 18 percent on the first day. What is the underpricing cost of issuing the securities to the firm? (Round your intermediate calculations to two decimal places.)

Question

Quizplus · Accepted Answer

The total proceeds from the IPO can be calculated as: 
$19.30 x 2,000,000 = $38,600,000 
The underpricing cost can be calculated as: 
($19.30 - $12.50)/ $19.30 x 2,000,000 = 310,880 shares 
Total underpricing cost = 310,880 x $19.30 = $6,006,064 
Adding the administrative costs, the total cost of issuing the securities to the firm is: 
$6,006,064 + $270,000 = $6,276,064, which is option C ($6.94 million) rounded to the nearest million.

Pau, Inc Issues a $38