IPO: Lucky Fortune Hotels issues an IPO sold on a best-effort basis. The company's investment bank demands a spread of 20 per cent. Five million shares are issued. However, the bank was overly optimistic and could not sell at the offer price of $31. If the net proceeds to the issuer were $110 million, what was the per share price at which the shares were sold?

Question

Quizplus · Accepted Answer

The net proceeds to the issuer were $110 million, which means that the total amount of money raised by the IPO was $110 million. The investment bank demanded a spread of 20 per cent, which means that the investment bank took 20 per cent of the total amount raised as its fee. This means that the investment bank took $22 million as its fee, and the issuer received $88 million. The issuer issued 5 million shares, so the per share price at which the shares were sold was $88 million / 5 million shares = $27.50.

IPO: Lucky Fortune Hotels Issues an IPO Sold on a Best-Effort