2 Chapter: 18 3 Problem: 6 4 5 6 Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC has 7 no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC's intrinsic value of operations is $210 million. LC 8 wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All other costs 9 associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued shares. Answer the 10 following questions. 11 12 13 Inputs 14 Value of operations (Pre-Ipo) $210 million 15 Number of existing shares (nExisting) 12 million 16 Target net proceeds $30 million 17 Flotation costs (F) 7% 18 19 20 a. What is the intrinsic stock price per share before the IPO? 21 22 Stock price before IPO = PPre-IPO = 23 24 b. Given the target net proceeds, what amount of gross proceeds are required? 25 26 Gross proceeds = million 27 28 29 30 c. What is projected total value of LC immediately after the IPO? Based on the total amount paid by the shareholders purchasing new shares in 31 the IPO, what percentage of the total post-IPO value do you think the new shareholders require to justify their stock purchases? 32 33 Total value after the IPO = VPostipo = million 34 35 Percentage of total post-IPO value required by new shareholders = 36 37