EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
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Question
Chapter 23, Problem 17P
a.
Summary Introduction
To determine: The average IPO underpricing.
Introduction: When a company sells its share publically in an open market for the first time, it is known as initial public offering (IPO).
b.
Summary Introduction
To determine: The expected one-day return on IPO portfolio.
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In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share.
If you wanted to lever up the returns of this trade, you could have executed it in your _____ account.
A) cash
B) margin
C) brokerage
D) bank
If you borrowed 50% of the upfront investment amount, your return (in percent terms) would have been _____.
A) 11.10
B) 22.10
C) 44.20
In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share.
If you wanted to lever up the returns of this trade, you could have executed it in your _____ account.
A) cash
B) margin
C) brokerage
D) bank
1) You are a big fan of investing in IPOs and three new IPOs are expected to hit the market this month. Assume the IPO price is $40/share for all three IPOs. When the three IPOs hit the market, they have the following characteristics:
IPO Price
1st Day Market Price
IPO A
$40
$43
IPO B
$40
$52
IPO C
$40
$55
What was the average underpricing of the three IPOs? Compute the underpricing of each IPO, then take the average of the three.
2) You purchased a machine for $100,000 and you depreciate it using straight-line depreciation over its 10-year life. If you sell the machine at the end of year 6 for $22,000, what will be your after-tax salvage value? Your tax rate is 0.21?
3) You are beginning a new 5-year project that will require $90,969 in initial net working capital (t=0), which you will get back at the end of year 5. If your WACC for this project is 10%, what is the effect of the net working capital on the NPV of the project?
4)
If your WACC is…
Chapter 23 Solutions
EBK CORPORATE FINANCE
Ch. 23.1 - Prob. 1CCCh. 23.1 - Prob. 2CCCh. 23.2 - Prob. 1CCCh. 23.2 - Prob. 2CCCh. 23.3 - List and discuss four characteristics about IPOs...Ch. 23.3 - Prob. 2CCCh. 23.4 - Prob. 1CCCh. 23.4 - What is the average stock price reaction to an...Ch. 23 - Prob. 1PCh. 23 - What are the advantages and the disadvantages to a...
Ch. 23 - Prob. 3PCh. 23 - Suppose venture capital firm GSB partners raised...Ch. 23 - Prob. 5PCh. 23 - Prob. 6PCh. 23 - Prob. 7PCh. 23 - Prob. 8PCh. 23 - Prob. 9PCh. 23 - Prob. 10PCh. 23 - Prob. 11PCh. 23 - Prob. 12PCh. 23 - What is IPO underpricing? If you decide to try to...Ch. 23 - Prob. 14PCh. 23 - Prob. 15PCh. 23 - Prob. 16PCh. 23 - Prob. 17PCh. 23 - Prob. 18PCh. 23 - Prob. 19PCh. 23 - Prob. 20P
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