In order to execute several growth initiatives, Golden Dragon Hotels need to issue new shares to equity investors in order to raise $15 million. The Company considers an Initial Public Offering on the Singapore Stock Exchange. It has appointed Singapore Investment Bank (SIB) to lead and underwrite the IPO. SIB will charge an underwriting fee of 4% of the gross IPO proceeds for its services. Pre-IPO, Golden Dragon Hotels' share capital comprises of 8 million shares outstanding. Question 10 Identify and explain the key objectives of all stakeholders involved in the IPO, i.e. the company, its current shareholders and new investors who will subscribe to the IPO. (max. 250 words) SIB, the underwriting bank which leads the IPO for Golden Dragon Hotels, has put together the order book (based on investor's expressions of interest) as shown in Table H of the Excel file. Question 11 Based on this, determine (i) the gross proceeds which need to be raised, (ii) the IPO price and (ii) the number of new shares to be issued? Question 12 Calculate the ownership dilution for the pre-IPO shareholders of Golden Dragon Hotels. Question 13 Calculate the market value of equity of Golden Dragon Hotels at the time of the IPO. You can use the IPO price as a proxy for the new stock price. Part 1 - Investment Appraisal / Cost of Capital Year 4 Year 5 Year 6 Year 7 Year 8 Table A - Investment Project A-new hotel development ($ million) Investment cash flows Operating cash flows Final year value Year 1 -8.0 Year 2 -6.0 2.0 Year 3 -1.0 3.0 3.5 4.0 4.5 5.0 5.5 15.0 Year 3 Year 4 Year 5 Year 6 Year 0 -4.0 Table B - Investment Project B-existing hotel acquisition ($ million) Investment cash flows Operating cash flows Final year value Year 3 Yearo Year 7 Year 1 -2.0 Yeara Years Year 8 Year? Years Year 2 -1.0 1.0 Year6 Year? Year 8 - 1.5 2.0 2.2 2.5 27 3.0 8.0 Table C Debt Equity Cost of Debt Cost of Equity Tax Rate 50.0% 50.0% 10.0% 25.0% 20.0% Part 2 - Raising Debt Table D - Investment Project C-renovation of existing hotels - cash flow profile for 1 hotel Year o Year 1 Year 2 Year 3 Year 0 -3.0 Year 4 = ($ million) - Investment cash flows - Increase in hotel operating cash flows Final year value -Net renovation cash flows per hotel Year 1 0.5 0.5 Year 2 0.8 0.8 0.8 Year 3 1.0 1.0 1.0 Year 4 1.0 3:0 -3.0 -3.0 0.5 0.8 Part 3 - Raising Equity Capital Table G Pre-IPO outstanding shares Underwriting fee Net amount to be raised 8.0 million 4.0% of gross proceeds 15.0 million $ Question 10 - Identify and explain the key objectives of all stakeholders involved in the IPO, i.e. the company, its current shareholders and new investors who will subscribe to the IPO. (max. 250 words) Table H IPO order book Price Shares 7.00 1,500,000 6.75 275,000 6.50 325,000 6.25 150,000 6.00 225,000 5.75 300,000 5.50 325,000 5.25 400,000 5.00 325,000 Question 11 - Based on this, determine (i) the gross proceeds which need to be raised, (ii) the IPO price and (ii) the number of new shares to be issued? In order to execute several growth initiatives, Golden Dragon Hotels need to issue new shares to equity investors in order to raise $15 million. The Company considers an Initial Public Offering on the Singapore Stock Exchange. It has appointed Singapore Investment Bank (SIB) to lead and underwrite the IPO. SIB will charge an underwriting fee of 4% of the gross IPO proceeds for its services. Pre-IPO, Golden Dragon Hotels' share capital comprises of 8 million shares outstanding. Question 10 Identify and explain the key objectives of all stakeholders involved in the IPO, i.e. the company, its current shareholders and new investors who will subscribe to the IPO. (max. 250 words) SIB, the underwriting bank which leads the IPO for Golden Dragon Hotels, has put together the order book (based on investor's expressions of interest) as shown in Table H of the Excel file. Question 11 Based on this, determine (i) the gross proceeds which need to be raised, (ii) the IPO price and (ii) the number of new shares to be issued? Question 12 Calculate the ownership dilution for the pre-IPO shareholders of Golden Dragon Hotels. Question 13 Calculate the market value of equity of Golden Dragon Hotels at the time of the IPO. You can use the IPO price as a proxy for the new stock price. Part 1 - Investment Appraisal / Cost of Capital Year 4 Year 5 Year 6 Year 7 Year 8 Table A - Investment Project A-new hotel development ($ million) Investment cash flows Operating cash flows Final year value Year 1 -8.0 Year 2 -6.0 2.0 Year 3 -1.0 3.0 3.5 4.0 4.5 5.0 5.5 15.0 Year 3 Year 4 Year 5 Year 6 Year 0 -4.0 Table B - Investment Project B-existing hotel acquisition ($ million) Investment cash flows Operating cash flows Final year value Year 3 Yearo Year 7 Year 1 -2.0 Yeara Years Year 8 Year? Years Year 2 -1.0 1.0 Year6 Year? Year 8 - 1.5 2.0 2.2 2.5 27 3.0 8.0 Table C Debt Equity Cost of Debt Cost of Equity Tax Rate 50.0% 50.0% 10.0% 25.0% 20.0% Part 2 - Raising Debt Table D - Investment Project C-renovation of existing hotels - cash flow profile for 1 hotel Year o Year 1 Year 2 Year 3 Year 0 -3.0 Year 4 = ($ million) - Investment cash flows - Increase in hotel operating cash flows Final year value -Net renovation cash flows per hotel Year 1 0.5 0.5 Year 2 0.8 0.8 0.8 Year 3 1.0 1.0 1.0 Year 4 1.0 3:0 -3.0 -3.0 0.5 0.8 Part 3 - Raising Equity Capital Table G Pre-IPO outstanding shares Underwriting fee Net amount to be raised 8.0 million 4.0% of gross proceeds 15.0 million $ Question 10 - Identify and explain the key objectives of all stakeholders involved in the IPO, i.e. the company, its current shareholders and new investors who will subscribe to the IPO. (max. 250 words) Table H IPO order book Price Shares 7.00 1,500,000 6.75 275,000 6.50 325,000 6.25 150,000 6.00 225,000 5.75 300,000 5.50 325,000 5.25 400,000 5.00 325,000 Question 11 - Based on this, determine (i) the gross proceeds which need to be raised, (ii) the IPO price and (ii) the number of new shares to be issued