Live Deliciously NOTE ON ANSWER ACCURACY: In all parts of this question, the answer must be accurate to 3 decimal places. It will be considered correct if it is within +/- 0.001 of the correct answer. For example, if the correct answer to a question is "10.500", then "10.499" and "10.501" will also be correct. This is because many parts of the question set depends on previous parts. So you want to make sure you have the correct value and understanding before moving on. Series A Venture Capital Financing: Live Deliciously is a start-up firm in need of financing after surviving to this point only on the savings of the founder. That founder, Phillip Black, finds a Series A venture capital investor group willing to pay $23.0 million in order to acquire a 30.0% stake in the firm. This would be the first use of any outside capital by the firm. Series B Venture Capital Financing: Three years after the first round of financing, Live Deliciously received a second Series B round of venture capital financing. The investors provided $63.0 million for a 40.0% stake of the firm. Initial Public Offering (IPO): The owners of the firm (Phillip Black, the Series A investors, & the Series B investors) collectively decided 5 years later to undergo an IPO. The IPO involved the flotation of 12.200 million new shares for a total of $140.300 million from investors. The shares issued through the IPO correspond to 30.0% of Live Deliciously's ownership. The issue price was set at $11.50/share. However, on the first day of trading after the IPO, the firm's stock closed at $15.75/share. The underwriting fees were $14.640 million. K) What was the value of the entire company implied by the price that shares were sold to the IPO investors at? What does the closing price at the end of the first day of trading reveal that the share market believes that the entire firm is actually worth? (Round your answers to 3 decimal places. Use the unrounded values in any subsequent calculations that need them) The firm value implied by the issue price of the IPO is $ million. The closing price at the end of the first day implies that the firm was actually worth $ million. L) How much did the pre-IPO investors (Phillip Black, the Series A investors, & the Series B investors) as a group collectively realize in wealth loss due to the IPO underpricing? (Round your answer to 3 decimal places. Use the unrounded value in any subsequent calculations that need it) The pre-IPO investors lose $ million as a group due to underpricing. M) How much did Phillip Black (the founder) individually realize in wealth loss due to the IPO underpricing? (Round your answer to 3 decimal places. Use the unrounded value in any subsequent calculations that need it) Phillip Black lost $ million individually due to underpricing. N) If there had been no underpricing, instead of selling 30.0% of their firm through the IPO, the pre-IPO investors could have raised exactly as much money while only selling what percent of the total ownership? (Round your answer to 3 decimal places. Use the unrounded value in any subsequent calculations that need it) The pre-IPO investors only had to give up % control if the shares had not been underpriced. O) Assume now that there had been zero underpricing or overpricing. In addition, assume that the pre-IPO investors each retain exactly the same number of shares after the IPO as they had prior to the IPO. How many new shares would have been issued through the IPO now? What would have been the market price of the shares of Live Deliciously after the IPO (Round your answers to 3 decimal places. Use the unrounded value of the first part if you need it to calculate the second part) If there had been zero mispricing, there would have been million new shares issued through the IPO. Those shares would have been worth $ per share. Live Deliciously NOTE ON ANSWER ACCURACY: In all parts of this question, the answer must be accurate to 3 decimal places. It will be considered correct if it is within +/- 0.001 of the correct answer. For example, if the correct answer to a question is "10.500", then "10.499" and "10.501" will also be correct. This is because many parts of the question set depends on previous parts. So you want to make sure you have the correct value and understanding before moving on. Series A Venture Capital Financing: Live Deliciously is a start-up firm in need of financing after surviving to this point only on the savings of the founder. That founder, Phillip Black, finds a Series A venture capital investor group willing to pay $23.0 million in order to acquire a 30.0% stake in the firm. This would be the first use of any outside capital by the firm. Series B Venture Capital Financing: Three years after the first round of financing, Live Deliciously received a second Series B round of venture capital financing. The investors provided $63.0 million for a 40.0% stake of the firm. Initial Public Offering (IPO): The owners of the firm (Phillip Black, the Series A investors, & the Series B investors) collectively decided 5 years later to undergo an IPO. The IPO involved the flotation of 12.200 million new shares for a total of $140.300 million from investors. The shares issued through the IPO correspond to 30.0% of Live Deliciously's ownership. The issue price was set at $11.50/share. However, on the first day of trading after the IPO, the firm's stock closed at $15.75/share. The underwriting fees were $14.640 million. K) What was the value of the entire company implied by the price that shares were sold to the IPO investors at? What does the closing price at the end of the first day of trading reveal that the share market believes that the entire firm is actually worth? (Round your answers to 3 decimal places. Use the unrounded values in any subsequent calculations that need them) The firm value implied by the issue price of the IPO is $ million. The closing price at the end of the first day implies that the firm was actually worth $ million. L) How much did the pre-IPO investors (Phillip Black, the Series A investors, & the Series B investors) as a group collectively realize in wealth loss due to the IPO underpricing? (Round your answer to 3 decimal places. Use the unrounded value in any subsequent calculations that need it) The pre-IPO investors lose $ million as a group due to underpricing. M) How much did Phillip Black (the founder) individually realize in wealth loss due to the IPO underpricing? (Round your answer to 3 decimal places. Use the unrounded value in any subsequent calculations that need it) Phillip Black lost $ million individually due to underpricing. N) If there had been no underpricing, instead of selling 30.0% of their firm through the IPO, the pre-IPO investors could have raised exactly as much money while only selling what percent of the total ownership? (Round your answer to 3 decimal places. Use the unrounded value in any subsequent calculations that need it) The pre-IPO investors only had to give up % control if the shares had not been underpriced. O) Assume now that there had been zero underpricing or overpricing. In addition, assume that the pre-IPO investors each retain exactly the same number of shares after the IPO as they had prior to the IPO. How many new shares would have been issued through the IPO now? What would have been the market price of the shares of Live Deliciously after the IPO (Round your answers to 3 decimal places. Use the unrounded value of the first part if you need it to calculate the second part) If there had been zero mispricing, there would have been million new shares issued through the IPO. Those shares would have been worth $ per share
