Q$5)$ You work for Shah Corporation as a Chief Financial Officer $($CFO$).$ Shah Corporation has $1,455,000$ shares outstanding, and the company is about to issue $1,400,000$ new shares in an IPO. The IPO price has been set at $$15$ per share and the underwriter spread is $7\%.$ The IPO is a big success with investors and the share price rises to $$22$ the first day of trading. Based on the given information, please answer questions a$,$ b$,$ c$,$ and d$.$

Answer:

a$)$ How much did Shah Corporation raise from IPO? Please provide detailed calculations$/$analysis of how you came up with the final answer. $(2$ Points$)$

b$)$ What is the market value of the Shah Corporation after the IPO? Please provide detailed calculations$/$analysis of how you came up with the final answer. $(1$ Point$)$

c$)$ Suppose Shah Corporation could have issued shares directly to investors at their fair market value, in a perfect market with no underwriting spread and no underpricing. What would the share price have been in this case, if Shah Corporation raised the same amount as in question a$.(2$ Points$)$

d$)$ Comparing $b$ and $c,$ what is the cost to the firm's original investors due to market imperfections from the IPO? $(1$ Point$)$