IPO pricing: 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 underpricing cost of issuing the securities to the firm?

Question

Quizplus · Accepted Answer

The total proceeds from the IPO are calculated as follows:
Number of shares issued = $38.6 million / $12.50 per share = 3,088,000 shares
Total proceeds = 3,088,000 shares x $19.30 per share = $59,562,400
The underpricing cost can be calculated as the difference between the total proceeds and the amount that the firm would have received if the IPO had been priced at $12.50 per share:
Underpricing cost = $59,562,400 - (3,088,000 shares x $12.50 per share) = $6,960,000
Therefore, the underpricing cost of issuing the securities to the firm is $6.96 million.

IPO Pricing: Pau, Inc