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Floatation cost problem

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Lewis Morris Crew spends $350,000 in bureaucratic expenses in their IPO. The underwriter sells 3 million shares at an offer price of $9.63, charging Lewis Morris Crew 50 cents per share in spread. The stock closes at $12. What was the floatation cost as a fraction of funds raised?

Ans: 33.14%

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Solution Summary

This solution provides assistance in determining the floatation cost as a fraction of funds raised.

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Funds Raised = (Offer price-underwriter spread)*Number of shares -Bureaucratic expenses
=(9.63-0.50)*3 million -0.35 million = 27.04 ...

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