Question 1

FARO Technologies, whose products include portable 3D measurement equipment,

has 400 million shares outstanding trading at $5 a share. The company announces its

intention to raise $200 million by selling new shares.

a. What do market signaling studies suggest will happen to FAROs stock price on

the announcement date? Why?

b. How large a gain or loss in aggregate dollar terms do market signaling studies

suggest existing FARO shareholders will experience on the announcement date?

c. What percentage of the amount of money FARO intends to raise is this expected

gain or loss?

d. What percentage of the value of FAROs existing equity prior to the

announcement is this expected gain or loss?

e. At what price should FARO expect its existing shares to sell immediately after the

announcement?