Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 15, Problem 18PS
IPOs* Refer to Section 15.1 and the Marvin Prospectus Appendix at the end of this chapter to answer the following questions.
- a. If there is unexpectedly heavy demand for the issue, how many extra shares can the underwriters buy?
- b. How many shares are to be sold in the primary offering? How many will be sold in the secondary offering?
- c. One day post-IPO, Marvin shares traded at $105. What was the degree of underpricing? How does that compare with the average degree of underpricing for IPOs in the United States?
- d. There are three kinds of cost to Marvin’s new issue—underwriting expense, administrative costs, and underpricing. What was the total dollar cost of the Marvin issue?
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A company conducts an initial public offering (IPO). At the end of the road show, the stock is priced at $100 per share and the investment bank charges $7 per share as compensation for its services under a firm commitment. The stock closes at $110 on the first day of trading and the media labels the IPO as a success. What is the "underpricing" on this IPO?
Question 13 options:
a)
6.4%
b)
7.0%
c)
10.0%
1. What is an alternative financial process to an initial public offering (IPO) for a private company that wants to go public?
Shelf registration
SPAC merger
Syndication
Reverse mortgage
2.Optimus stock price started the year at $32.00 and ended the year at $38.00. It paid a dividend of $1.00 per share. What is its rate of return for the year?
25.9%
15.05%
21.35%
18.3%
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.)
Chapter 15 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 15 - Prob. 1PSCh. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Private placements You need to choose between...Ch. 15 - Prob. 7PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...
Ch. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 12PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...Ch. 15 - Prob. 19PSCh. 15 - Prob. 20PSCh. 15 - Prob. 21PSCh. 15 - Dilution Here is recent financial data on Pisa...
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