The Total Direct Costs of Underwriting an Equity IPO

question 37

Multiple Choice

The total direct costs of underwriting an equity IPO:

• A) tend to increase on a percentage basis as the total proceeds of the IPO increase.
• B) are generally between 7 and 9 percent, regardless of the issue size.
• C) tend to be less than the direct costs of issuing bonds on a percentage of proceeds basis.
• D) exclude the gross spread.
• E) can be as low as 5.5 percent and as high as 25 percent of gross proceeds.

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Definitions:

Focal Date

A specific point in time that serves as a reference or target for financial calculations or contractual obligations.

Loan Date

The specific date on which a loan agreement is signed, and the funds are disbursed to the borrower.

Plant Capacity

Plant capacity refers to the maximum output or production that a manufacturing facility can achieve under normal conditions.

Variable Costs

Costs that vary directly with the level of production or volume of output, in contrast to fixed costs.