A young, rapidly growing firm is considering listing through an offer for subscription (Initial public offering, IPO) on the Johannesburg Stock Exchange (JSE). The firm has access to some venture capital and retained earnings; however, the owners of the firm want to expand the firm. The owners estimate that they need to raise at least R300 million.

a) If the issue is underpriced by 25% and the real value per share is R10, what amount of shares would they have to sell and at what price?......................................................................................(2)

b.) Advise the firm on the Issue of underpricing and how It would likely affect the amount of capital raised, taking into account the market capitalization of 1he firm in your advice. (3)