Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC has no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC's intrinsic value of operations is $210 million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued shares. Answer the following questions. Inputs $210 million Value of operations (Vpre-IPO) Number of existing shares (nExisting) Target net proceeds Flotation costs (F) 12 million $30 million 7% a. What is the intrinsic stock price per share before the IPO? Stock price before IPO = PPre-IPO = b. Given the target net proceeds, what amount of gross proceeds are required? Gross proceeds = million
Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC has no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC's intrinsic value of operations is $210 million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued shares. Answer the following questions. Inputs $210 million Value of operations (Vpre-IPO) Number of existing shares (nExisting) Target net proceeds Flotation costs (F) 12 million $30 million 7% a. What is the intrinsic stock price per share before the IPO? Stock price before IPO = PPre-IPO = b. Given the target net proceeds, what amount of gross proceeds are required? Gross proceeds = million
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 4P
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Transcribed Image Text:Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early
investors. LC has no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC's intrinsic value of
operations is $210 million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7%
underwriting spread. All other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in
the IPO will be newly issued shares. Answer the following questions.
Inputs
Value of operations (VPre-IPO)
Number of existing shares (nExisting)
Target net proceeds
Flotation costs (F)
$210 million
12 million
$30 million
7%
a. What is the intrinsic stock price per share before the IPO?
Stock price before IPO = PPre-IPO =
b. Given the target net proceeds, what amount of gross proceeds are required?
Gross proceeds =
million
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