QUESTION # 1 (10 marks) The American Investment bank Goldman Sachs went public in 1999. The underwriters acquired a total of 69 million shares for $62.00 and sold them to the public at an offering price of $64.00. The firm also paid a total of $9.2 million in legal fees and other costs. By the end of the first day's trading Goldman Sachs prices had risen to $70.00. A. What were the direct costs of the issue? (3 marks) B. What were the costs of underpricing? (3 marks) C. What were the total flotation costs? (2 marks) D. What were the Flotation Costs as a proportion of the market value of the shares? (2 marks) QUESTION # 2 (10 marks) A. Explain what an underwriter is and what their role is in an IPO. What are the specific responsibilities they have in helping a company with an IPO? (4 marks) B. Explain what is underpricing and how/why does it happen? Why do corporations permit underpricing? (6 marks)