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Royal Company wants to raise $51.5MM to open a plant overseas. To achieve this goal, the company decides to do an underwritten IPO to raise the funds. It hires an investment bank, who estimates that legal, accounting, SEC, taxes and other direct costs will be $1,455,000. Royal anticipates that its indirect costs associated with the process will total $587,934. The investment bank also estimates that the IPO shares can be priced at $31 per share. Royal Company agrees to pay the investment bank a 9.5% spread. How much money does Royal Company actually receive from the IPO after direct expenses

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Answer: $51.5MM

Explanation:

Royal Company wants to raise $51.5MM for the plant and this is the amount they will receive from the IPO after direct expenses.

As for the Direct expenses, Royal Company will raise an amount that will account for the amount of $51.5MM that they want to raise and still pay off any expenses (including direct expenses) that arise.

In other words, They will raise more than $51.5MM so that they may be able to get $51.5MM.

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