Aerospace Z is a private firm that recently went public. The managers of the firm have decided to undertake a Dutch IPO to sell 1,000,000 shares. The following table summarises all the bids the firm received. 

a) What is the IPO price? (2 marks)

b) What is the number of shares allocated to each investor? (14)

c) How much money does Aerospace Z raise from the IPO? (2 marks)

d) If the IPO represented 50% of total value of the firm, what is the
percentage of Aerospace Z owned by investor A? (3 marks)

e) If the stock price rises by 20% the day after the IPO, what is the dollar
amount of the profit investor A makes? (3 marks)

f) Given the 20% increase in the price of the stock after the IPO day,
there are rumors that the underwriters did not do a good job in pricing
the stock, hence underpricing the security. How much money is left on
the table due to this underpricing? (3 marks)

 

 

 

Question 2.
ILI corporation manufactures surgical masks. The corporation has spent
$38m in fixed production costs (excluding depreciation cost). Each box of
surgical masks costs $4.45 to produce, and given the high demand for these
masks, the ILI plans to sell each box for $17.45. There is $3.8m depreciation
cost every year. The corporate tax rate is 40%. (25 marks)

a) The sales and marketing team have prepared the following table to
provide management with potential scenarios for sales. What is the
DOL when sales levels are optimistic? (4 marks)

b) If there is 10% decrease in sales, what is corresponding change in ILI's
EBIT? (4 marks)

ILI is currently fully equity funded. However, the managers are considering
levering up the firm to reach a D
E =0.9. The following table shows the financial
situation of the firm with and without leverage.

Dutch IPO Investor # Shares demanded Bid A 350k $33 B 150k $31 C 200k $28 D 250k $27 E 180k $27 F 150k $25 # Shares allocated