Polly Pies Inc. is planning an initial public offering (IPO). The deal will be underwritten with opening stock price set at $29 per share. The investment bank will charge a 3.5% spread. Direct costs will be $375,000. Spread = charge by investment bank for their services. It is the difference between price paid to issuing company and price at which shares are sold to the public See page 434 for an example. a. How many shares must the firm sell to net $18 million? 3 marks Place your final answer here: Offer Price Direct costs $ 375,000 Spread Net Amt $18,000,000 Proceeds per share = (1 - Spread)(share price) = Required proceeds after direct costs # Shares = Req'd Proceeds / Proceeds per share b. If the stock price closes the first day at $33, how much cash has the firm left on the table? 1 mark Place your final answer here: Closing price = Amount left on table = (Closing price - offer price)(Number of shares) Amount left on table = c. What are the firm's total costs (direct, indirect and underwriting) for the IPO? 2 marks Place your final answer here: Underwriting cost = (spread (Offer Price)# Shares) Underwriting cost = Indirect costs = amt left on table = Total Costs = (Direct costs) + Underwriting cost + Amount left on table Total Costs = The first day of trading can produce significant stock price fluctuations. In Canada most first-day returns fall between 3.6% to 11.6%. See page 434 for some examples of First- Day IPO Returns d. What are the typical steps involved in issuing an initial Public Offering (IPO)? 2 marks e. Find an example of a Canadian or American company that had their IPO sometime during the last 2 years. Provide a short overview of the company including the name of their CEO, as well as a discussion about the expectations prior to the IPO, the results of the first-day and their current share price. Your answer should be 1-2 paragraphs in length and use a minimum of two sources that are cited at the bottom of your answer in APA format. 6 marks Polly Pies Inc. is planning an initial public offering (IPO). The deal will be underwritten with opening stock price set at $29 per share. The investment bank will charge a 3.5% spread. Direct costs will be $375,000. Spread = charge by investment bank for their services. It is the difference between price paid to issuing company and price at which shares are sold to the public See page 434 for an example. a. How many shares must the firm sell to net $18 million? 3 marks Place your final answer here: Offer Price Direct costs $ 375,000 Spread Net Amt $18,000,000 Proceeds per share = (1 - Spread)(share price) = Required proceeds after direct costs # Shares = Req'd Proceeds / Proceeds per share b. If the stock price closes the first day at $33, how much cash has the firm left on the table? 1 mark Place your final answer here: Closing price = Amount left on table = (Closing price - offer price)(Number of shares) Amount left on table = c. What are the firm's total costs (direct, indirect and underwriting) for the IPO? 2 marks Place your final answer here: Underwriting cost = (spread (Offer Price)# Shares) Underwriting cost = Indirect costs = amt left on table = Total Costs = (Direct costs) + Underwriting cost + Amount left on table Total Costs = The first day of trading can produce significant stock price fluctuations. In Canada most first-day returns fall between 3.6% to 11.6%. See page 434 for some examples of First- Day IPO Returns d. What are the typical steps involved in issuing an initial Public Offering (IPO)? 2 marks e. Find an example of a Canadian or American company that had their IPO sometime during the last 2 years. Provide a short overview of the company including the name of their CEO, as well as a discussion about the expectations prior to the IPO, the results of the first-day and their current share price. Your answer should be 1-2 paragraphs in length and use a minimum of two sources that are cited at the bottom of your answer in APA format. 6 marks
