Question

GM's equity value is $30 million with 6 million shares outstanding. GM raises an additional $4...

GM's equity value is $30 million with 6 million shares outstanding. GM raises an additional $4 million by placing 1 million shares at $4 each to a group of institutional investors. Assuming that the current equity value of GM is unaffected by other information in the placement announcement, what is the post placement wealth of the old shareholders closest to?

a. $25.71m.

b. $29.14

c. $27.32m.
d. $30.86m.

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Answer #1

Answer:-

GM's Equity value before placement = $30 Million

Shares outstanding before placement = 6 Million

Per share price before placement = $30M/6M= $5 Per share

Placement value = $ 4 Million

Price per share = $ 4

Number of shares placed = 1 Million

Total number of shares after additional placement = 6 Million + 1 Million = 7 Million

Post placement value = $30 Million + $4 Million = $34 Million

Price per share after placement = $34 Million/7 Million = $4.857

Post placement value of old share holders = 6 Million * $4.86 = $29.14 Million

So, the answer is Option (b) - $29.14 Million

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