The Sugarland Co. has just gone public. Under a firm commitment agreement, the company received $32.70 for each of the 4.17 million shares sold. The initial offering price was $35.10 per share, and the stock rose to $42.40 per share in the first few minutes of trading. The company paid $912,000 in legal and other direct costs and $264,000 in indirect costs. What was the flotation cost as a percentage of funds raised?

Question

Hailie Durham

Business

5 September, 07:20

The Sugarland Co. has just gone public. Under a firm commitment agreement, the company received $32.70 for each of the 4.17 million shares sold. The initial offering price was $35.10 per share, and the stock rose to $42.40 per share in the first few minutes of trading. The company paid $912,000 in legal and other direct costs and $264,000 in indirect costs. What was the flotation cost as a percentage of funds raised?

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Emery Blevins · Answer 1

0.81%

Explanation:

Flotation costs are the expenses incurred by a company when it issues new securities. The costs include underwriting, legal, registration, and audit fees.

For Sugar land co. flotation cost will be

Legal fee: $912,000 + direct cost $264,000 = $ 1,176,000.00

net amount raised equals = $35.10 x 4,170,000=$ 146,367,000.00 - flotation cost

=$146,367,000.00 - $ 1,176,000.00 = $145,191,000.00

As a percentage of fund raised = 1176,000.00/145,191,000x100

=0.0081 x100

=0.81%