Question

Carla Vista, Inc., a high-technology firm in Portland, raised a total of $120 million in an IPO. The company received $27 of the $30 per share offering price. The firm’s legal fees, SEC registration fees, and other out-of-pocket costs were $250,000. The firm’s stock price increased 17 percent on the first day of trading. What was the total cost to the firm of issuing the securities?

Answer 1

$32,650,000

Step-by-step explanation:

total stocks issued = $120,000,000 / $30 = 4,000,000 stocks

direct costs = (4,000,000 x $3) + $250,000 = $12,250,000 (paid by the company)

indirect costs = $120,000,000 x 17% = $20,400,000 (due to low valuation of stocks)

total costs = $32,650,000