To explain: The expectations of the investor from the offering and the reasons for that.
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.
Initial Public Offering:
The initial public offering refers to the shares or the stock which is offered by a company to the public for the first time. This is done following lots of regulations and is generally done to raise the funds of a company.
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 at a lower price than on which it was issued first for trade.
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Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- In the spring of 1984, Disney Productions' stock was selling for about 3.125 per share. (All prices have been adjusted for 4-for-l splits in 1986 and 1992.) Then Saul Steinberg, a New York financier, began acquiring it; after he had 12%, he announced a tender offer for another 37% of the stockwhich would bring his holdings up to 49%at a price of 4.22 per share. Disney's management then announced plans to buy Gibson Greeting Cards and Arvida Corporation, paying for them with stock. It also lined up bank credit and (according to Steinberg) was prepared to borrow up to 2 billion and use the funds to repurchase shares at a higher price than Steinberg was offering. All of these efforts were designed to keep Steinberg from taking control. In June, Disney's management agreed to pay Steinberg 4.84 per share, which gave him a gain of about 60 million on a 2-month investment of about 26.5 million. When Disney's buyback of Steinberg's shares was announced, the stock price fell almost instantly from 4.25 to 2.875. Many Disney stockholders were irate, and they sued to block the buyout. Also, the Disney affair added fuel to the fire in a congressional committee that was holding hearings on proposed legislation that would (1) prohibit someone from acquiring more than 10% of a firm's stock without making a tender offer for all the remaining shares; (2) prohibit poison pill tactics such as those Disney's management had used to fight off Steinberg; (3) prohibit buybacks, such as the deal eventually offered to Steinberg, (greenmail) unless there was an approving vote by stockholders; and (4) prohibit (or substantially curtail) the use of golden parachutes (the one thing Disney's management did not try). Set forth the arguments for and against this type of legislation. What provisions, if any, should it contain? Also, look up Disney's current stock price to see how its stockholders have fared. Note that Disney's stock was split 3-for-l in July 1998.arrow_forwardIn 1970, Wal-Mart offered 300,000 shares of itscommon stock to the public at a price of $16.50 pershare. Since that time, Wal-Mart has had 11 twofor-one stock splits. On a purchase of 100 shares at$16.50 per share on the company’s first offering,the number of shares has grown to 204,800 sharesworth $15,767,500 in July 2014. What is the returnon investment for investors who purchased the stockin 1970 (over a 44-year ownership period)? Assumethat no dividends were received during that periodarrow_forwardAt the time of starting its business, a company has only a cash account of $120,000 and a common stock account of $120,000 (par value: $1 each). The company issues new shares of $20,000 to the public at a price of $3. However, after the public offering, the share prices decline to $2.3. The company decides to buy back 8,000 of its shares. Assuming that the company applies par value method for accounting for treasury shares, what would be the total shareholders’ equity in the balance sheet at the end of all of these transactions? A) $41,600 B) $158,400C) $161,600D) $172,000E) Other (please specify)arrow_forward
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- The Windsor Corporation has 120,000 shares outstanding with a current market price of $8.10 per share. The company needs to raise an additional $36,000 to finance new expenditures and has decided on a rights issue. The issue will allow current stockholders to purchase one additional share for 20 rights at a subscription price of $6 per share. How many new shares must be issued? What will be the ex-rights stock price? If the ex-rights price were set at $7.90, would you as a potential new stockholder choose to buy shares ex-rights or buy shares at the old price and exercise your rights?arrow_forwardMesmer Analytic, a biotechnology firm, floated an initial public offering of 2,000,000 shares at a price of $5.00 per share. The firm's owner/managers held 60 percent of the company's $1.00 par value authorized and issued stock following the public offering. One month after the IPO, the firm's board of directors declared a one-time dividend of $0.50 per share payable to all stockholders, meaning that the owner/managers would receive an immediate dividend, in part out of the pockets of the new public stockholders. What was the book value per share of the firm after the special dividend was paid? $2.10 $2.60 $2.30 $1.10 None of the abovearrow_forwardA firm goes public. The firm receives $36.50 for each of the 7.25 million shares sold. The initial offering price was $38.75 per share, and the stock rose to $42.65 per share is the first few minutes of trading. The firm paid $2,285,000 in direct legal and other costs and $988,000 in indirect cost. What was the total for underpricing of this offer?arrow_forward
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