CORPORATE FINANCE-ACCESS >CUSTOM<
11th Edition
ISBN: 9781260170016
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 4QP
Summary Introduction
To determine: The profit, the expected profit and the principle illustrated.
Initial Public Offering:
The initial public offering refers to the shares or the stock which are offered by a company to the public for the first time. This is done through following lots of regulations and is generally done to raise the funds of a company.
Under pricing:
The under pricing 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 at a lower price than which were issued first for the trade.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Bellex Technik AG issues an IPO sold on a best-// basis. The company's investment bank demands a spread of 17 per cent of the offer price, which is set at €30 per share. Three million shares are issued. However, the bank was overly optimistic and eventually is able to sell the shares for only €28.
What are the proceeds for the issuer and the underwriter?
The Woods Co. and the Mickelson Co. have both announced IPOs at $53 per share. One of these is undervalued by $11, and the other is overvalued by $2, but you have no way of knowing which is which. You plan to buy 800 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.
If you could get 800 shares in Woods and 800 shares in Mickelson, what would your profit be? (Do not round intermediate calculations.)
I found the price of an ideal situaiton but am not sure how to distribute numbers in the expected profit situation
A company is planning an IPO. Its underwriters have said thestock will sell at $50 per share. The underwriters will charge a 7%spread. How many shares must the company sell to net $93 million,ignoring any other expenses? (2 million)
Chapter 20 Solutions
CORPORATE FINANCE-ACCESS >CUSTOM<
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
Knowledge Booster
Similar questions
- 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 sharearrow_forwardABC Co. believes that XYZ Corporation’s stock price is going to decline from its current level of ₱82.50 sometime during the next 5 months. For ₱510.25, ABC Co. could buy a 5 month put option for the right to sell 100 shares at a price of ₱83 per share. If ABC Co. bought a 100 share contract for ₱510.25 and XYZ Corporation’s stock price actually dropped to ₱63, what would be the net profit (after transactions costs but before taxes) of ABC Co.?a. ₱1,439.75b. ₱1,489.75c. ₱1,950.00d. ₱2,000.00e. ₱2,435.00arrow_forwardDavid'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?arrow_forward
- a) The sales price for a new company would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be Rs.2.50; and fixed costs are estimated at Rs.120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero? b) A company completed a 3-for-1 stock split. Immediately prior to the split, its stock sold for Rs.150 per share. The firm's total market value was unchanged by the split. Other things held constant, what is the best estimate of the stock's post-split price? c) A company has a capital budget of Rs.3,000,000. It wants to maintain a target capital structure that is 15% debt and 85% equity. It forecasts that its net income this year will be Rs.3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?arrow_forwardCalculate the cost of preferred stock for Ohio Valley Power Company, which is planning to sell $100 million of $3.25 cumulative preferred stock to the public at a price of $25 per share. Flotation costs are $1.00 per share. Ohio Valley has a marginal income tax rate of 40%. (The answer choice without supporting calculation will not earn any points).arrow_forwardIPO pricing: Myriad Biotech management plans a $114 million IPO in which the offering price to the public will be $51 per share. The company will receive $47.50 per share. The firm's legal fees, SEC registration fees, and other out-of-pocket costs will total $525,000. If the stock price increases 14 percent on the first day of trading, what will be the total cost of issuing the securities?arrow_forward
- crane Inc. common chairs currently sell for $30 each. The firms management believes that it's share should really sell for $54 each. If the firm just paid an annual dividend of two dollars per share and management expects those dividends to increase by 8% per year forever, and the common knowledge to the market. What is the current cost of common equity for the firm?arrow_forwardWuttke Corp. wants to raise $4.8 million via a rights offering. The company currently has 580,000 shares of common stock outstanding that sell for $85 per share. Its underwriter has set a subscription price of $40 per share and will charge the company a spread of 6 percent. If you currently own 2,500 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? Please answer fast I give you upvote.arrow_forwardThe price per share of an unlevered firm is $5. EBIT is projected to be $50,000. There are no taxes. The board of the firm is considering a capital restructuring where they would repur-chase outstanding stock by borrowing $5,000 at a 10% rate. There are 10,000 shares currently outstanding. a) Assuming that all profits are paid out as dividends to shareholders, what is the EPS or distributions per share back to shareholders if the firm remains unlevered and if the firmrestructures? b) If you own 10 shares of the unlevered firm but prefer the distributions of the levered firm,how could you replicate the payoff of the levered firm yourself? (Provide details on how muchto borrow and how many units of stocks to purchase. Assume that stocks can be purchased in incremental amounts) c) Now suppose the firm levers up and you have a strong preference for the safer unleveredreturns. Again, with our 10 shares, how can you…arrow_forward
- Stump, Inc. issues a $66 million IPO priced at $17 per share, and the offering price to the public is $22 per share. The firm's legal fees, SEC registration fees, and other administrative costs are $350,000. The firm's stock price increases 15 percent on the first day. What is the underpricing spread? $51 million O $15 million O $66 million O $30 millionarrow_forwardA6) 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)arrow_forwardA 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?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT