Calculating Costs of Issuing Stock Computer Technology Corp. recently went public with an initial public offering of 7 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $8.35 per share and the underwriter's spread was 7 percent of the gross proceeds. Computer also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by Computer from the sale of the 7 million shares of stock.
A) $8.35
B) $8.39
C) $8.98
D) $9.02

Question

Quizplus · Accepted Answer

The gross proceeds per share received by Computer can be calculated as follows:

Net proceeds per share = $8.35 
Underwriter's spread = 7% of gross proceeds = 0.07 * (7 million shares * $8.35) = $4,389,500 
Legal and administrative costs = $300,000

Gross proceeds per share = Net proceeds per share + Underwriter's spread + Legal and administrative costs 
= $8.35 + ($4,389,500/7,000,000) + ($300,000/7,000,000) 
= $8.35 + $0.627 + $0.043 
= $9.02

Therefore, the gross proceeds per share received by Computer was $9.02. The correct answer is D.