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Problem 10-02

A company is going public at $20 and will use the ticker XYZ. The underwriters will charge a 7 percent spread. The company is issuing 15 million shares, and insiders will continue to hold an additional 30 million shares that will not be part of the IPO. The company will also pay $1 million of audit fees, $2 million of legal fees, and $300,000 of printing fees. The stock closes the first day at $24. What are the total costs of going public for XYZ as a percentage of the total pre-cost equity value? In calculating the pre-cost equity value, use the closing price of the stock at the end of the first day as the pre-cost equity value. Include underpricing in the calculation of the total costs of the offering. Do not round intermediate calculations. Round your answer to two decimal places.

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