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Kohwe Corporation plans to go public. The firm plans to borrow $500 million debt and raise $1,079.35 million equity. Kohwe's corporate tax rate is 30%.
Kohwe Corporation plans to go public. The firm plans to borrow $500 million debt and raise $1,079.35 million equity. Kohwe's corporate tax rate is 30%. a. As a star analyst working for the lead underwriter, you are asked to assist the book building process. Specifically, you are assigned to assess whether the majority of the risk born by Kohwe's shareholders is due to its business risk or financial risk. After a thorough analysis, you decide that the business risk of a comparable firm, Impi Corporation, is the same as that of Kohwe Corporation: Provide your assessment of the business versus financial risk born by the shareholders of Kohwe Corporation with numerical support? [8 points] b. Assume Kohwe Corporation negotiates with its underwriters in a firm commitment offering and sets the offer price at $10.54 per share with a spread of 7%. How many shares should Kohwe Corporation issue to raise the amount of equity needed (Round up to the nearest integer)? [4 points]
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