Explanation

For going public, a firm has to incur direct as well as indirect cost.

Direct cost includes:

Underwriting commission- It includes the commission paid to the underwriter for providing its services regarding issues of securities.
Legal fee- It includes the fee paid to a lawyer for providing legal assistance in carrying the required compliances of the company.
Audit fee- A firm has to pay a fee to its auditor for performing the annual audit of the company.
Registration fee- It includes the fee paid to the securities and commission exchange (SEC) for registration of new securities issued by the company.
Listing fee- It includes fee paid to a recognized stock exchange for listing of new securities of the company

2.Indirect cost includes:

Restructuring cost- Restructuring cost includes the cost to set up the required departments and implementation of a new accounting and control system before issuing new securities.
Difference in the closing price and offer price- It includes the loss incurred by a company because of the difference in closing price and offer price of the security on the first day of trading.

Verified Answer

While going public, a firm has to incur the following major costs:

Direct cost includes underwriting commission to an underwriter, legal fee to the lawyer, audit fee to the auditor, registration fee with SEC, listing fee to stock exchange.
Indirect cost includes restructuring cost incurred by the firm before making an offer and the cost of difference in offer price and closing price of securities on the first day of trading.