Your firm has 80 million shares outstanding, and you are about to issue 15 million new shares in an IPO. The IPO price has been set at 40$ per share, and the underwriting spread is 7%. The IPO is a big success with investors, and the share price rises to 75$ the first day of trading.

a) How much did your firm raise from the IPO?

b) What is the market value of the firm after the IPO?

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

d) Comparing part (b) and part (c), what is the total cost to the firms original shareholders due to the market price imperfections from the IPO?