Canadian Corporation incurred $4 million for the floatation costs and legal fees of its IPO.The issue involved 17 million shares.As a firm commitment written deal,the underwriter agreed to buy the shares at $50 each and resell them to the public at $54 per share.What will be the percentage of direct costs required in this deal?

Question

Quizplus · Accepted Answer

The direct costs are the floatation costs and legal fees, which total $4 million. The total proceeds from the IPO are 17 million shares at $50 each, totaling $850 million. The percentage of direct costs is calculated as ($4 million / $850 million) * 100 = 0.47%. However, given the options provided, it seems there might be a misunderstanding in the calculation or the options given. Based on the standard approach to calculating direct cost percentages, none of the provided options accurately reflect the direct cost percentage as calculated. If we consider the direct costs in relation to the gross proceeds from the sale to the public (17 million shares at $54 each = $918 million), the calculation would still not match the provided options. It appears there may be a mistake in the question setup or in the interpretation of the direct costs related to the IPO.

Canadian Corporation Incurred $4 Million for the Floatation Costs and Legal