The Huff Co. has just gone public. Under a firm commitment agreement, Huff received $21.50 for each of the 6 million shares sold. The initial offering price was $23.65 per share, and the stock rose to $30.51 per share in the first few minutes of trading. Huff paid $1,260,000 in direct legal and other costs, and $390,000 in indirect costs. The flotation costs were what percentage of the funds raised?

Question

Quizplus · Accepted Answer

Net amount raised = 6m ($21.50) - $1,260,000 - $390,000 = $127,350,000Total direct costs = $1,260,000 + ($23.65 - $21.50) (6m) = $14,160,000Total indirect costs = $390,000 = ($30.51 - $23.65) (6m) = $41,550,000Total costs = $14,160,000 + $41,550,000 = $55,710,000Flotation cost percentage = $55,710,000/$127,350,000 = 43.75 percent