Oxford Pty Ltd, a fashion company in Sydney wants to file an IPO to raise $5 million (this is the gross amount to be raised in the IPO). The IPO price is determined as $4.70, underwritten at $3.90 per share. The company’s legal fees, ASIC registration fees and other administrative costs are $350,000 in total. At the end of the first trading day, Oxford’s share price increased to $5.20 per share. What is the company’s total cost of the IPO? (4 marks)
b) Answer part i, ii, iii and iv based on the information below.
ABC Learning Pty Ltd needs to raise $36 million (this is the net amount required by the company) by selling ordinary shares through an IPO. The underwritten service was on the stand-by basis, and the investment bank charges a commission of 4%. The agreed IPO price is $15 per share to the public. Suppose the IPO is unsuccessful, and the company only achieves a subscription for 97% of the total number of shares. (4 marks)
i. What are the total proceeds from this IPO? (1 mark) Page 15 of 15
ii. How much money would the company receive from investors and the underwriter? (1 mark)
iii. How much commission does the bank earn? (1 mark)
iv. How much commission would the investment bank earn if it offers a best-effort underwriting service? (1 mark)
