CASE 4

Assume a company incurs 2 million in legal expenses to sell 4 million shares at 52 each to an underwriter, and the underwriter sells the shares at public offer price 56 each. By the end of the first day's trading, the issuing company's stock price had risen to 68.

Instructions:

Answer the following questions. Show your solutions. (5 points)

1. What was net amount raised by the company? (5 points)

2. What was the total underwriters spread? (5 points)

3. What was the total cost of underpricing? (5 points)

4. What was the total flotation cost? (5 points)

5. What was the flotation cost as a percentage of the net amount raised? (5 points)

6. Discuss the reasons of going public for the company. (5 points)