Sign in
Profit or Loss on New Stock IssueProfit or Loss on New Stock Issue
I have attached the questions on the following pages. See attachments for clarification1. Profit or Loss on New Stock IssueProfit or Loss on New Stock Issue
Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $260,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answers to the nearest dollar. Loss should be indicated by a minus sign.
$5.5 per share?
Answer: $
$7 per share?
Answer: $
$4.25 per share?
Answer: $ 2. Pricing Stock Issues in an IPO
Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang’s current value of equity is $58 million. Zang currently has 5 million shares outstanding and will issue 1.6 million new shares. ESM charges a 9% spread.
What is the correctly valued offer price? Do not round intermediate calculations. Round your answer to the nearest cent.
Answer: $
How much cash will Zang raise net of the spread (use the rounded offer price)? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.
Answer: $ 3. Tax Shield Value
Wilde Software Development has a 9% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 5% rate after Year 3. Wilde’s tax rate is 25%.
Year 1 Year 2 Year 3 Interest expenses $85 $100 $140
a) What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent.
Answer: $
b) What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent.
Answer: $ 4. See attachment for number 4
