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24 November, 05:15

A mid-sized firm plans to issue 10 million shares during an IPO. The underwriter plans to sell shares at $22.55; however, many investors believe the company should be valued at $30.25 per share. If the underwriter charges a $2.0 million fee to undertake the IPO, how much will the firm raise in the IPO

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  1. 24 November, 08:56
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    Answer: $223,500,000

    Explanation:

    An Initial Public Offering is the first issuance of a Company's stock to the world. It is usually done through an Investment bank that underwrites the issuing and sells it at a price that they feel is right based on their Research.

    In this scenario, the Underwriter thinks the amount that the stock should be offered at is $22.55 and so that is the price it will be offered at.

    10,000,000 shares are to be offered.

    $2,000,000 is to be taken as fees by the Underwriter.

    The total money the company will make will therefore be,

    = (No. Of shares offered * Share Price) - Underwriting Fee

    = (10,000,000 * 22.55) - 2,000,000

    = 225,500,000 - 2,000,000

    = $223,500,000
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