#$5.$ Biopharm is composed of division $x$ and division $Y.$ The current market value of Biopharm

is $$400$ million with $5$ million shares outstanding. Biopharm is currently structured so that each

division is a wholly owned subsidiary of the parent. Each subsidiary has $2$ million shares of

stock outstanding that are all owned by the parent. The only assets of Biopharm are divisions $x$

and $Y.$ There are no positive or negative synergies between the two division and the current

present value of the future cash flows from division $x$ is $$300$ million. The firm is

contemplating an equity carveout in which shares of division $Y$ are sold to the public in an IPO.

The deal would be structured so that $200,000$ newly printed shares of $Y$ would be sold to the

public and an additional $300,000$ shares currently held by Biopharm $($i$.$e$.,$ the parent$)$ would be

sold to the public.

$($a$)$ Assuming the shares are sold in the IPO at their fair price $($i$.$e$.,$ a price that equals the present

value of cash flows$),$ what will the stock price of Biopharm be immediately after the carveout is

completed?

$($b$)$ Assuming the shares are sold in the IPO at a price of $$40$ per share, what will the stock price

of Biopharm be immediately after the carveout is completed? Assume that as soon as the IPO is

completed, all stock prices adjust to their fair market values.