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CMA Intermediate · Financial Management and Business Data Analytics · Introduction to Financial Management

A company issues 1,00,000 equity shares of face value ₹10 through an IPO at a price of ₹10 premium per share. The shares are sold in the primary market. Which statement is correct about the amount received by the company?

The company receives ₹20,00,000. The issue price is face value ₹10 plus premium ₹10, which is ₹20 per share, and with 1,00,000 shares sold in the primary market the entire proceeds go to the company. Secondary market trades give the company nothing.

  1. A₹10,00,000, because only face value is received
  2. B₹20,00,000, because the issue price is ₹20 per share and the company receives the proceedsCorrect
  3. C₹10,00,000 as it is received later by investors in the secondary market
  4. D₹20,00,000, received from the secondary market trades

Explanation

Issue price = 10 + 10 = ₹20 per share. Proceeds = 1,00,000 x 20 = ₹20,00,000, received by the company because the sale is in the primary market. Secondary market trades transfer shares between investors and bring no money to the company.

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