Pau, Inc. issues a $38.6 million IPO priced at $12.50 per share, and the offering price to the public is $19.30 per share. The firm's legal fees, SEC registration fees, and other administrative costs are $270,000. The firm's stock price increases 18 percent on the first day. What is the underwriting cost?

Question

Quizplus · Accepted Answer

The underwriting cost is the difference between the offering price to the public and the price paid by the underwriter. In this case, the offering price to the public is $19.30 per share and the price paid by the underwriter is $12.50 per share. Therefore, the underwriting cost is $19.30 - $12.50 = $6.80 per share. The total underwriting cost is $6.80 per share multiplied by the number of shares issued, which is 38.6 million shares. Therefore, the total underwriting cost is $6.80 per share * 38.6 million shares = $262.88 million.

Pau, Inc Issues a $38