Questions 21-23. Dropbox and Instacart have announced 1PO5 at 550 per share One of the two is overvalued by 55. and the other is undervalued by $7, but you have no way of lenowing which is which. You plan on buying 1,000 shares of each issue. If an issue is dinderpriced, it will be rationed, and only 30nk of your order will be filled. 21. (5 points) What is the amount of profit you could cam if yoa coeld get 1,000 shares of Dropbox and 1,000 shares of Instacart? 22. (5 points) What profit do you actually expect? 23. (3 points) This phenomenon in IPOs is called in financeieconomics 24. (9 points) Winter Market Co. is currently an unlevered firm with 200,000 shares outstanding (no debt). The stock: price is S15 per share. The company is planning to have $400,000 of debt financing at an interest rate of 5% (RD) to buy back its shares. The comporate tax rate is 302c. 1) (3 points) What is the value of the unlevered firm, Vu (under the current capital structure)? 2) (3 points) What is the amount of interest tax shield? 3) (3 points) What is the value of the levered firm, VL (under the new capital structure with 5400,000 debt)? Questions 25-26. Paradise Co. currently has 100% equity. The value of the unlevered firm (Vu) is $1,000 with a WACC of 20% (Ru). The company plans to change its capital structure by issuing debt of $400 at Ro=8% and uses the moncy to buy back shares. The corporate tax rate is 30%. After the capital restructuring of the company, the levered fim value (V1) is 51.120, and thas the firm's equity value: becomes 5720(E=VLD). 25. (5 points) What is the cost of equity of the levered firm (Ry) after changing its capital structure? 26. (5 points) What is the WACC of the levered company? Is it the same as the WACC before restructuring (Ru)? Questions 21-23. Dropbox and Instacart have announced 1PO5 at 550 per share One of the two is overvalued by 55. and the other is undervalued by $7, but you have no way of lenowing which is which. You plan on buying 1,000 shares of each issue. If an issue is dinderpriced, it will be rationed, and only 30nk of your order will be filled. 21. (5 points) What is the amount of profit you could cam if yoa coeld get 1,000 shares of Dropbox and 1,000 shares of Instacart? 22. (5 points) What profit do you actually expect? 23. (3 points) This phenomenon in IPOs is called in financeieconomics 24. (9 points) Winter Market Co. is currently an unlevered firm with 200,000 shares outstanding (no debt). The stock: price is S15 per share. The company is planning to have $400,000 of debt financing at an interest rate of 5% (RD) to buy back its shares. The comporate tax rate is 302c. 1) (3 points) What is the value of the unlevered firm, Vu (under the current capital structure)? 2) (3 points) What is the amount of interest tax shield? 3) (3 points) What is the value of the levered firm, VL (under the new capital structure with 5400,000 debt)? Questions 25-26. Paradise Co. currently has 100% equity. The value of the unlevered firm (Vu) is $1,000 with a WACC of 20% (Ru). The company plans to change its capital structure by issuing debt of $400 at Ro=8% and uses the moncy to buy back shares. The corporate tax rate is 30%. After the capital restructuring of the company, the levered fim value (V1) is 51.120, and thas the firm's equity value: becomes 5720(E=VLD). 25. (5 points) What is the cost of equity of the levered firm (Ry) after changing its capital structure? 26. (5 points) What is the WACC of the levered company? Is it the same as the WACC before restructuring (Ru)
