Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Using the book Brigham Intermediate Financial Management 13e v2 Your firm has 10 million shares outstanding, and you are about to issue 5 million new

Using the book "Brigham Intermediate Financial Management 13e v2"

Your firm has 10 million shares outstanding, and you are about to issue 5 million new shares in an IPO. The IPO price has been set at $20 per share, and the underwriting spread is 7%. The IPO is a big success with investors, and the share price rises to $50 on the first day of trading.

a. How much did your firm raise from the IPO?

b. What is the market value of the firm after the IPO?

c. Assume that the post-IPO value of your firm is its fair market value. Suppose your firm

could have issued shares directly to investors at their fair market value, i.e., with no

underwriting spread and no underpricing. What would the IPO share price have been in

this case, if the firm raises the same amount as in part (a)?

d. Based on the analysis in previous parts, what is the total IPO cost to the firms original

investors?

e. Who lost from underpricing? Who benefited? Explain.

Your firm has 10 million shares outstanding, and you are about to issue 5 million new shares in an IPO. The IPO price has been set at $20 per share, and the underwriting spread is 7%. The IPO is a big success with investors, and the share price rises to $50 on the first day of trading.

a. How much did your firm raise from the IPO?

b. What is the market value of the firm after the IPO?

c. Assume that the post-IPO value of your firm is its fair market value. Suppose your firm

could have issued shares directly to investors at their fair market value, i.e., with no

underwriting spread and no underpricing. What would the IPO share price have been in

this case, if the firm raises the same amount as in part (a)?

d. Based on the analysis in previous parts, what is the total IPO cost to the firms original

investors?

e. Who lost from underpricing? Who benefited? Explain.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Micro Entrepreneurship And Micro Enterprise Development In Malaysia Emerging Research And Opportunities

Authors: Abdullah Al Mamun , Mohammad Nurul Huda Mazumder, Noor Raihani Zainol, Rajennd Muniady

1st Edition

1522584730,1522584757

More Books

Students also viewed these Finance questions