10. IPO Costs. Having heard about IPO underpricing, I put in an order to my broker for 1,000shares of every IPO he can get for me. After 3 months, my investment record is as follows:(LO15-2)IPOBUDShares Allocated to Me5002001,0000Price per Share$1020812Initial Return7%12-223a. What is the average underpricing in dollars of this sample of IPOs? b. What is the averageinitial return on my "portfolio" of shares purchased from the four IPOs that I bid on? Whencalculating this average initial return, remember to weight by the amount of money invested ineach issue. c. "You have just encountered the problem of the winners' curse." True or false?

An initial public offering, or IPO, is the process of releasing new stock to the general public in…

Answered: 10. IPO Costs. Having heard about IPO…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 18PROB

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Having heard about IPO underpricing, I put in an order to my broker for 1, 120 shares of every IPO he can get for me. After 3 months, my investment record is as follows: IPO Shares Allocated to Me Price per Share Initial Return A 620 $ 10 6 % В 320 20 14 C 1, 1208-3D0 12 23 a. What is the average underpricing in dollars of this sample of IPOs? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the average initial return on my "portfolio" of shares purchased from the four IPOs that I bid on? When calculating this average initial return, remember to weight by the amount of money invested in each issue.
Having heard about IPO underpricing, I put in an order to my broker for 1,110 shares of every IPO he can get for me. After 3 months, my investment record is as follows: IPO Shares Allocatedto Me Price per Share Initial Return A 610 $ 12 7 % B 310 20 13 C 1,110 10 − 2 D 0 14 20 a. What is the average underpricing in dollars of this sample of IPOs? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the average initial return on my “portfolio” of shares purchased from the four IPOs that I bid on? When calculating this average initial return, remember to weight by the amount of money invested in each issue. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
1) You are a big fan of investing in IPOs and three new IPOs are expected to hit the market this month. Assume the IPO price is $40/share for all three IPOs. When the three IPOs hit the market, they have the following characteristics: IPO Price 1st Day Market Price IPO A $40 $43 IPO B $40 $52 IPO C $40 $55 What was the average underpricing of the three IPOs? Compute the underpricing of each IPO, then take the average of the three. 2) You purchased a machine for $100,000 and you depreciate it using straight-line depreciation over its 10-year life. If you sell the machine at the end of year 6 for $22,000, what will be your after-tax salvage value? Your tax rate is 0.21? 3) You are beginning a new 5-year project that will require $90,969 in initial net working capital (t=0), which you will get back at the end of year 5. If your WACC for this project is 10%, what is the effect of the net working capital on the NPV of the project? 4) If your WACC is…
As the winner of a contest, you are now CFO for the day for Maguire Inc. and your day's job involves raising capital for expansion. Maguire's common stock currently sells for $45.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of common from reinvested earnings? Group of answer choices 0.09% 0.56% 0.19% 0.84% 0.37%
Choose the correct letter of answer: In the current year, Company A had P15 Million in sales, while total fixed costs were held to P6 Million. The firm's total assets at year-end were P20 Million and the debt/equity ratio was calculated at 0.60. If the firm's EBIT is P3 Million, the interest on all debt is 9%, and the tax rate is 40%, what is the firm's return on equity? a. 11.16%b. 14.4%c. 18.6%d. 24.0%e. 28.5%
A6) Jean has a margin account with a balance of $50,000. If the initial margin requirement is 50 percent, and Nicora is currently selling at $50 per share: · How many shares of Nicora Co can Jean buy? · If the maintenance margin is 25 percent, to what price can Nicora Co stock price fall before Jean receives a margin call? . what would be return if Jean sells shares at $60 after and broker charges 50 dollars per each transaction (ignore interest on debt and dividends)
a. Suppose you want to buy 10,000 shares of MegaWorld Corporation at a price of 4.00 You put up P10,000 and borrow the rest. What does your account balance sheet would look like? What is your margin? b. Supposed that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like?
David's Watersports Firm is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $16.85 per share for 550,000 shares. The company will receive $15.40 per share and will incur $180,000 in registration, accounting, and printing fees. A. What is the spread on this issue in percentage terms? What are the total expenses of the issue as a percentage of total value (at retail)? B. If the firm wanted to net $15.99 million from this issue, how many shares must be sold?
ABC SAOG needs RO. 5 million for the installation of a new factory. The new factory expects to yield annual Earnings Before Interest and Tax (EBIT) of RO. 600,000. In choosing a financial plan, ABC SAOG has an objective of maximizing earnings per share (EPS). The company proposes to issue ordinary shares and raise the debt of RO. 500,000, RO. 1,500,000 or RO. 2,000,000. The current market price per share is RO. 350 and is expected to drop to RO. 150 if the funds are borrowed in excess of RO. 1,800,000. Funds can be borrowed at the following rates: Up to RO. 500,000 at 7% Over RO. 500,000 to RO. 2,000,000 at 9% Over RO. 2,000,000 at 14% Assuming a tax rate of 40%, advise the company.
The Very Big Corporation needs to net $10,000,000 from the sale of common stock. Its investment dealer has informed the firm that the reatil price will be $25 per share, and the firm will receive $22 per share. Out-of-pocket costs are $300,000. How many shares must be sold?
Our company, which was founded 10 years ago, has allocated 10,000 shares to investors at 1 TL nominal price. Today, earning per share of our company is 60 kuruş and the company has announced that payout ratio is 40%. If the expected return on equity is 24%, a What is the current price of one share today? b. What would be the price of one share 5 years later (Ps)? c. What would be the total market value of the equity 5 years later?
Suppose you want to buy 10,000 shares of MegaWorld Corporation at a price of 4.00 You put up P10,000 and borrow the rest. What does your account balance sheet would look like? What is your margin? Assets Liabilities and Account Equity 10,000 shares of MegaWorld Corporation ₱ 40,000 Margin Loan ₱ 30,000 Account Equity ₱ 10,000 Total ₱ 40,000 Total ₱ 40,000 Margin = ₱ 10,000 / ₱ 40,000 = 0.25 = 25% 2. Supposed that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like?

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