Sherpa Movers has just gone public.Under a firm commitment agreement,the firm received $34.40 for each of the 3.5 million shares sold.The initial offering price was $37 per share,and the stock rose to $43 per share in the first few minutes of trading.Sherpa Movers paid $896,000 in legal and other direct costs and $225,000 in indirect costs.What was the flotation cost as a percentage of the funds raised?

Question

Quizplus · Accepted Answer

Net amount raised = (3,500,000 × $34.40) - $896,000 - $225,000 = $119,279,000; Total costs = $896,000 + $225,000 + [($43 - 34.40) × 3,500,000] = $31,221,000; Flotation cost percentage = $31,221,000/$119,279,000 = 26.17 percent

Sherpa Movers Has Just Gone Public