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25 May, 18:25

An IPO was offered to the public at $18 a share with the issuing firm receiving $16.50 of that amount. The issuer incurred $750,000 in legal and administrative costs. At the end of the first trading day, the stock was priced at $22.40 a share. What was the total dollar cost, including both direct and indirect costs, of issuing the securities if 225,000 shares were offered?

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  1. 25 May, 18:54
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    Answer: Total dollar cost along with direct and indirect cost is $2,077,500.

    Calculation notes:

    Calculation of indirect cost = (actual stock price - issued price amount received) x no of shares

    (22.40-16.50) x 225000

    =$1327500

    Given that legal and administrative cost which is direct cost as $750000.

    Total dollar cost = Direct cost + Indirect cost

    =750000+1327500

    =$2077500
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