CORPORATE FINANCE >C<
11th Edition
ISBN: 9781308875637
Author: Ross
Publisher: MCG/CREATE
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Chapter 20, Problem 3QP
Summary Introduction
To determine: The number of shares currently available before the offering.
Bond:
Bond refers to the securities which are traded in the public to raise the capital when needed. It is an investment with a fixed income where an investor gives money to an entity or individual for a specified period of time at a fixed rate.
Underpricing:
The underpricing term refers to the offering of the stocks or the bond at a low price than before. The stocks or the debt are said to be underpriced when they are traded less.
Rights Offer:
The rights offer is the offer in which common stock is issued to the existing shareholders. In this offer, the shareholder has issued an option in which a certain number of shares can be bought at a specific price and at specific duration.
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The Tennis Shoe Company has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $56 to $54.30 ($56 is the rights-on price; $54.30 is the ex-rights price, also known as the when-issued price). The company is seeking $17.5 million in additional funds with a per-share subscription price equal to $41. How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.) (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
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Ignatius Industries is considering going public but is still determining a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Ignatius have decided to make their own estimate of the firm’s common stock value. The firm’s CFO has gathered data for valuating using the free cash flow valuation model.
The firm’s weighted average cost of capital is 12%, and it has $1,500,000 of debt at market value and $550,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 year, 2024 through 2028, are given below. Beyond 2028 to infinity, the firm expects its free cash flow to grow by 3% annually.
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325,000
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810,000
2027
950,000
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1,690,000
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Use your finding in part a, along with the data provided…
Chapter 20 Solutions
CORPORATE FINANCE >C<
Ch. 20 - Prob. 1CQCh. 20 - Debt versus Equity Flotation Costs Why arc the...Ch. 20 - Prob. 3CQCh. 20 - Prob. 4CQCh. 20 - Prob. 5CQCh. 20 - Prob. 6CQCh. 20 - Prob. 7CQCh. 20 - Prob. 8CQCh. 20 - Prob. 9CQCh. 20 - IPO Pricing The following material represents the...
Ch. 20 - Competitive and Negotiated Offers What are the...Ch. 20 - Seasoned Equity Offers What are the possible...Ch. 20 - Prob. 13CQCh. 20 - Prob. 14CQCh. 20 - Prob. 15CQCh. 20 - Rights Offerings Chanelle, Inc., is proposing a...Ch. 20 - Prob. 2QPCh. 20 - Prob. 3QPCh. 20 - Prob. 4QPCh. 20 - Calculating Flotation Costs The St. Anger...Ch. 20 - Prob. 6QPCh. 20 - Calculating Flotation Costs The Green Hills Co....Ch. 20 - Prob. 8QPCh. 20 - Stock Offerings The Newton Company has 50,000...Ch. 20 - Dilution Teardrop, Inc., wishes to expand its...Ch. 20 - Dilution The all-equity firm Metallica Heavy Metal...Ch. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 17QPCh. 20 - Prob. 18QPCh. 20 - Prob. 1MCCh. 20 - Prob. 2MCCh. 20 - Prob. 3MCCh. 20 - Prob. 4MC
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