Deep Hollow Oil issued 140,000 shares of stock last week,received $23.15 a share,and incurred direct costs of $287,000.The offer price was $29 a share.Within the first hour of trading,the stock price increased to $34 a share.What was the flotation cost as a percentage of the funds raised?

Question

Quizplus · Accepted Answer

Total costs = $287,000 + [($34 - $29)× 140,000] + [($29 - $23.15)× 140,000] = $1,806,000
Amount raised = ($23.15 × 140,000)- $287,000 = $2,954,000
Flotation cost percentage = $1,806,000 / $2,954,000 = 0.6114,or 61.14%

Deep Hollow Oil Issued 140,000 Shares of Stock Last Week,received