Stump, Inc. a technology firm in Prairie View, Texas, issues a $66 million IPO priced at $17 per share, and the offering price to the public is $22 per share. The firm's legal fees, SEC registration fees, and other administrative costs are $350,000. The firm's stock price increases 15 percent on the first day. What is the underpricing on this issue?

Question

Quizplus · Accepted Answer

Underpricing is calculated as the difference between the offering price to the public and the IPO price, multiplied by the number of shares. Here, it's ($22 - $17) * (66,000,000 / 22) = $9,900,000.