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Your firm has 99 million shares outstanding and you are about to issue 55 million new shares in an IPO The IPO price has been set at $20 per share and the underwriting spread is 8% The IPO is a

Your firm has 99 million shares outstanding, and you are about to issue 55 million new shares in an IPO. The IPO price has been set at $20 per share, and the underwriting spread is 8%. The IPO is a big success with investors, and the share price rises to $48 the first day of trading.

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 the firm is the fair market value. Suppose your firm could have issued shares directly to investors at their fair market? value, in a perfect market with no underwriting spread and no underpricing. What would the share price have been in this? case, if you raise the same amount as in part

?(a?)?

d. Comparing part

?(b?)

and part

?(c?),

what is the total cost to the? firm's original investors due to market imperfections from the? IPO?

 

Apr 06 2020 View more View Less

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