Your firm has 8 million sharesoutstanding, and you are about to issue 6 million new shares in an IPO. The IPO price has been set at $15 pershare, and the underwriting spread is 7%. The IPO is a big success withinvestors, and the share price rises to $55 the first day of trading.

a. How much did your firm raise from theIPO?

b. What is the market value of the firm after theIPO?

c. Assume that the post IPO value of the firm is the fair market value. Suppose your firm could have issued shares directly to investors at their fair marketvalue, in a perfect market with no underwriting spread and no underpricing. What would the share price have been in thiscase, if you raise the same amount as in part (a)?

d. Comparing part (b) and part (c), what is the total cost to thefirm's original investors due to market imperfections from theIPO?