Award 100 point high mountain gear issued 385000

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Award: 1.00 point High Mountain Gear issued 385,000 shares of stock last week. The underwriters charged a spread of 7.2 percent in exchange for agreeing to a firm commitment. The legal and accounting fees were $302,000. The company incurred $39,000 in indirect costs. The offer price was $17 a share. Within the day of of trading, the stock was selling for $18.80 a share. What was the flotation cost as a percentage of the funds raised? 31.90 percent 35.78 percent 32.51 percent 26.26 percent 29.08 percent Flotation costs = {[$18.80- $17× (1 - .072)] ×385,000} + $302,000 + 39,000 = $1,505,240 Funds raised = [$17× (1 - .072) ×385,000] - $302,000 -39,000 = $5,732,760 Cost percentage = $1,505,240/ $5,732,760= .2626, or 26.26 percent References Multiple Choice Learning Objective: 15-03 Explain initial public offerings and identify some of the costs of going public. Difficulty: 1 Basic Section: 15.7 The Cost of Issuing Securities Page 19 of 20 Assignment Print View 12/2/2016
20. Award: 1.00 point Two companies have both announced IPOs at $16.50 per share. One of these is undervalued by $2, and the other is overvalued by $1.60, but you have no way of knowing which is which. You previously placed an order for 1,000 shares of each issue. If an issue is undervalued, it will be rationed, and only half your order will be filled. What profit do you now expect? -$375 -$600 $25 $150 $400 Profit = (500 ×$2) + [1,000 ×(-$1.60)] = -$600 References Multiple Choice Learning Objective: 15-03 Explain initial public offerings and identify some of the costs of going public. Difficulty: 1 Basic Section: 15.5 IPOs and Underpricing Page 20 of 20 Assignment Print View 12/2/2016

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