QuestionJuly 28, 2025

Under a firm commitment agreement, Zeke Company went public and received 30.50 for each of the 7 million shares sold. The initial offer price was 33 and the stock rose to 35.36 The company paid 560,000 in direct flotation costs and 215,000 in indirect costs. What was the flotation cost as a percentage of funds raised?

Under a firm commitment agreement, Zeke Company went public and received 30.50 for each of the 7 million shares sold. The initial offer price was 33 and the stock rose to 35.36 The company paid 560,000 in direct flotation costs and 215,000 in indirect costs. What was the flotation cost as a percentage of funds raised?
Under a firm commitment agreement, Zeke Company went public and received 30.50 for each of the 7 million shares sold. The initial offer price
was 33 and the stock rose to 35.36 The company paid 560,000 in direct flotation costs and 215,000 in indirect costs. What was the flotation
cost as a percentage of funds raised?

Solution
4.7(245 votes)

Answer

0.363% Explanation 1. Calculate Total Funds Raised Multiply the number of shares by the price received per share: 7,000,000 \times 30.50 = \213,500,000. 2. Calculate Total Flotation Costs Add direct and indirect costs: 560,000 + 215,000 = \775,000. 3. Calculate Flotation Cost Percentage Use the formula **Flotation Cost Percentage = \frac{\text{Total Flotation Costs}}{\text{Total Funds Raised}} \times 100**: \frac{775,000}{213,500,000} \times 100 \approx 0.363\%.

Explanation

1. Calculate Total Funds Raised<br /> Multiply the number of shares by the price received per share: $7,000,000 \times 30.50 = \$213,500,000$.<br /><br />2. Calculate Total Flotation Costs<br /> Add direct and indirect costs: $560,000 + 215,000 = \$775,000$.<br /><br />3. Calculate Flotation Cost Percentage<br /> Use the formula **Flotation Cost Percentage = \frac{\text{Total Flotation Costs}}{\text{Total Funds Raised}} \times 100**: <br /> $\frac{775,000}{213,500,000} \times 100 \approx 0.363\%$.
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