Computing the Net Proceeds of an IPO
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ABC is planning an IPO. Its underwriters say the stock the stock will sell at $20. The direct costs will be $800,000. The underwriters will charge a 7% spread. A - How many shares must be sold to net $30 million? B- if the stock price closes the first day at $22, how much has ABC left on the table? C- What are ABC's total costs for IPO?
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Solution Summary
Given the expected price per share, expected number of shares, direct costs, and spread, this solution illustrates how to determine the net proceeds an issuer will clear on an initial public offering.
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An underwriter spread is a form of compensation to the underwriter for its labor to bring the stock to market. It is the difference between what an underwriter will clear after selling a share of stock and what it will pay to the company issuing the stock. Direct stock issuance costs are those such as printing the certificates.
In this case, for every $20 per share the underwriter ...
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