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 $63 million. Zang currently
has 5 million shares outstanding and will issue 1.2 million new
shares. ESM charges a 5% spread.
What is the correctly valued offer price? Round your answer to the
nearest cent.
$
How much cash will Zang raise net of the spread? Round intermediate
calculations to two decimal places. Round your answer to three
decimal places. Enter your answer in millions. For example, an
answer of $1.2 million should be entered as 1.2, not
1,200,000.
$ million
Pre - Value
IPO = $63 million
Exisitng Shares = 5 million
Net proceeds = [63/5]*1.2 = $15.12 million
F = 5%(spread)
Gross proceeds = net proceeds/(1-F)
= $15.12 million/(1 - 0.05) = $15.916 million
Vpost-ipo = Vpre-ipo + Net proceeds
= $63 million +$15.916(1 - 0.05) = $78.12 million
% required = gross proceeds/Vpost-ipo
= $15.916 / $78.12 million = 0.2037
n new = 0.2037*5 / (1 - 0.2037) = /79.63 = 1.2793
Poffer = 15.916 milllion/1.2793 million = $12.44
Pnet of spread = $12.44*(1 - 0.05) = $11.82
Poffer = Vpre-ipo/F*nnew+nexising
= $63 million / [(0.05*1.2 million) + 5 million] = $63 million / 5.06 million = $12.45
Pnet of spread = $12.45*(1 - 0.05) = $11.83
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