Can someone please give me the correct Flotation cost percentage of the funds ra

Question

Can someone please give me the correct Flotation cost percentage of the funds raised ?

The Wiley Oakley Co, has just gone public. Under a firm commitment agreement, Wiley Oakley received $20.35 for each of the 6.52 million shares sold. The initial offering price was $22.20 per share, and the stock rose to $28.71 per share in the first few minutes of trading. Wiley Oakley paid $902,000 in legal and other direct costs and $177,000 in indirect costs. (Enter your answer as directed, but do not round intermediate calculations.) Required: What was the flotation cost as a percentage of funds raised? (Enter your anser as a percentage rounded to 2 decimal places (e.g., 32.16).) Flotation cost percentage

Explanation / Answer

(a) In the question, initial offer price = $22.20 per share

Amount received per share = $ 20.35

The differential is paid as underwriting per share (Implied). Differential per share = $ 22.20 - $ 20.35 = $ 1.85

Total underwriting paid = $1.85 per share * 6.52 million shares = $12,062,000

(b) Legal and other direct costs (Given) = $ 902,000

(c) The stock price rose to $28,71 in a few minutes when the initial offering price was $22.20, thereby, leading to an indirect cost per share of $ 28.71 - $ 22.20 = $ 6.51

Total indirect cost because of the share price rise = $6.51 per share * 6.52 million shares

= $42,445,200

(d) Indirect cost (Given) = $177,000

(e) Thus, total flotation costs incurred = (a) + (b) +(c) + (d)

= $ 12,092,000 + $ 902,000 + $42,445,200 + $ 177,000

= $ 55,586,200

(f) Net amount raised = 6.52 million * $ 20.35 per share - $902,000 - $177,000

= $ 131,603,000

Thus, flotation costs as a percentage of funds raised = (e) / (f)

= $ 55,586,200 / $ 131,603,000

= 42.237% or 42,24%

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