Answered: A firm conducting an IPO of common…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 14P

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On November 7, 2013, Twitter released its initial public offering (IPO) priced at $26 per share. When the day ended, it was priced at $44.90, reportedly making about 1600 people into millionaires in a single day.[20] At the time it was considered a successful IPO. Four years later, Twitter is trading at around $18 per share. Why do you think that occurred? Is Twitter profitable? How can you find out?
Suppose IWT has decided to distribute $50 million, which it presently is holding in liquid short-term investments. IWT’s value of operations is estimated to be about $1,937.5 million; it has $387.5 million in debt and zero preferred stock. As mentioned previously, IWT has 100 million shares of stock outstanding. Assume that IWT has not yet made the distribution. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Now suppose that IWT has just made the $50 million distribution in the form of dividends. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Suppose instead that IWT has just made the $50 million distribution in the form of a stock repurchase. Now what is IWT’s intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic stock price per share after the repurchase?
Profit or Loss on New Stock Issue Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows: The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? $5 per share $6 per share $4 per share

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A firm conducting an IPO of common staock sold 1 million new shares in the offering at an offer price of $10 dollars per share. After the offering, the firm had 5 million shares outstanding, and the price of those shares in the secondary market was $12. The Firms IPO was underpriced by