Rainbow Corporation has just gone public. Under a firm commitment agreement, Rainbow received 21.39 for each of the 20 million shares sold. The initial offering price was 23 per share, and the stock rose to 28.41 per share in the first few minutes of trading. Rainbow paid 950,000 in direct legal and other costs and 320,000 in indirect costs.

a.What was net amount raised? (4 points)

b.What was the underwriters spread? (4 points)

c.What was the cost of under-pricing? (4 points)

d.What were the total costs? (4 points)

e.What was the flotation cost as a percentage of the net amount raised? (4 points)

f.Discuss advantages and disadvantages of a firm going public. (5 points)