Problem:
The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $15.60 for each of the 30 million shares sold. The initial offering price was $16.10 per share, and the stock rose to $17.30 per share in the first few minutes of trading. Raven paid $680,000 in direct legal and other costs and $240,000 in indirect costs.
Required:
Question: What was the flotation cost as a percentage of funds raised?
Note: Provide support for rationale.