Question

The Rabe Company has just gone public under a firm commitment agreement and sold (i.e. floated) 4.1 million shares to the public. Rabe stock went public (i.e. begin to trade over the exchange) at $34.40. The first day closing price of Rabe stock was $41 per share. Rabe paid $905,000 in legal and other direct costs, $250,000 in indirect costs, and an underwriter’s fee of $2.40 per share.

Required:

i.           Compute the net amount raised by the Boeing Company as a result of the IPO.

ii.          Compute the Underpricing cost or money left on the table.

Answer 1

	Ans i	No/Amt $
1	No of shares issued to public	4,100,000
2	Issue Price	$            34.40
3	Gross Amount Realized =1*2	$141,040,000
4	Less Total Underwriter's fee @$2.4/share =4.1M*2.4=	$     9,840,000
5	Less Legal & other direct costs	$        905,000
6	Less : Indirect costs of share issue	$        250,000
7	Net Amount Raised by Rabe=3-4-5-6=	$130,045,000
	Ans ii
8	Issue Price per share	$            34.40
9	Price /share at first day closing=	$            41.00
10	Underpricing cost/ Money left on the table per share=9-8=	$              6.60
11	Total Underpricing cost/ Money left on the table per share=10*1=	$   27,060,000