Blossom Biotech management plans a $120 million IPO in which the offering price to the public will be $50 per share. The company will receive $47.50 per share. The firm’s legal fees, SEC registration fees, and other out-of-pocket costs will total $500,000. If the stock price increases 14 percent on the first day of trading, what will be the total cost of issuing the securities? Total cost $

$23,300,000

Explanation:

Total IPO costs include both direct and indirect costs. Direct costs are all the associated costs related to the IPO itself, while indirect costs equal the amount of money lost due to not pricing the stocks correctly.

total stocks issued = $120,000,000 / $50 = 2,400,000

total underwriting fees = ($50 - $47.50) x 2,400,000 = $6,000,000

other associated costs = $500,000

total direct costs = $6,500,000

total indirect costs = ($50 x 14%) x 2,400,000 = $16,800,000

total costs = $23,300,000

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