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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?
$7 per share?
$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.
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.
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
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