Explain what would have been the total cost of underwriting

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Reference no: EM1349616

This is a Minicase for Mutt.com. Here are the details and questions: Details- 1) Within 3 years the company was generating revenues of $3.4 million a year. 2)The company's entire equity capital was 1.5 million shares owned by the three owners. 3) The initial public offering involved the sale of 500,000 shares by the 3 existing holders with the sale of 750,000 shares by the company.4)The company estimated that the issue would cost a total of $1.3 mil(expenses). 4) Entire issue could be sold at a price of $24 a share. Underwriters thought this was being greedy.Underwriters suggested $18 a share. Questions: 1)Would Mutt.com prefer a low stock price? Would that make the issue less costly?

Questions:

Suppose the underwriter purchased the stocks from the issuer at $15 per share and sold to public at $18. What would have been the total cost of underwriting assuming other expense, legal, auditing, and distribution costs was $1.3 million? What would have been total cost as a percentage the market value if investors valued the stock at $20 per share?

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Reference no: EM1349616

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