- IPO Allocations
You have placed orders to purchase 100 shares of
each of three IPOs. Each IPO is priced at $10 a share. The number of shares you
are allocated and the market price at the end of the first day are:
Stock Shares allocated Market
price
A 100 $
8.00
B 80 $11.00
C 20 $15.00
What is the amount of your total profit or loss on
these stocks as of the end of the first day of trading?
- Flotation
costs
The Alpha Co. wants to raise $20 million to fund a
new project. The company estimates that it will spend $500,000 for accounting,
legal and other costs related to the issue. The underwriting spread is 7.5
percent. The issue price of the stock is $25 a share.
How many shares of
stock does the Alpha Co. need to sell?
- Rights
– Number of shares needed
Tell Me Why, Inc. wants to raise $6 million to
develop a new website designed for kids. The company has decided to do this
through a rights offering with a subscription price of $40. The current market
price of Tell Me Why, Inc. stock is $51.59 per share.
How many new shares
of stock does the company need to sell?
Note: The
subscription price is less than the current market price. This is necessary if
a right is to have any value.
- Rights
– Number of rights
Telephoto, Inc. wants to raise $12 million through a
rights offering. Each shareholder will receive one right for each share they
own. The subscription price has been set at $20. Currently, the company has 1.5
million shares outstanding with a current market price of $28.45 a share.
How many rights will be issued?
How many rights will be needed to purchase one new
share of stock in this offering?
- Rights – Value of a right
Kurt currently owns 4 shares of Ideals, Inc. These
shares have a market value of $36 each. Ideals just announced the details of a
new rights offering. The company will issue one right per share of outstanding
stock. The new shares in this offering are priced at $20 plus 4 rights.
What is the value
of one right?
- Rights – Value of a right
Alexander & Co. currently has a total firm value
of $21.6 million. The company has decided to raise another $6 million through a
rights offering. The subscription price is $15 per new share purchased. The
company currently has 1.2 million shares outstanding and will issue one right
per outstanding share.
How many rights
will be needed to purchase one new share?
What is
the value of one right?
- Dilution - Ownership
Thomas owns 3,500 shares of stock in Hot Tamales.
The company currently has 25,000 shares outstanding and is preparing to sell an
additional 10,000 shares to finance future expansion. Tomas is not going to
purchase any additional shares.
How will Thomas’ ownership position in Hot Tamales
change as a result of this new issue of stock?
- Dilution – Accounting and financial
JKL, Inc. has compiled information on their current
financial status as seen in the table on the next slide. The company is
analyzing the financial impact of a proposed project. The project requires an
initial investment of $200,000 for fixed assets. This investment will be funded
by issuing additional shares of stock. The project has a net present value of
$100,000 and a price / earnings ratio equal to that of the firm.
Given this information, can you complete the last
column on the next slide to show how the various values will change if the
project is implemented?
- Dilution – Accounting and financial
What is the market value per share?
If the market value per share, also called the
price, is $8.4444 and the price / earnings ratio is 16, what is the earnings
per share?
If you multiply the earnings per share times the
number of shares, won’t you get the net income?
Isn’t the return on
equity equal to the net income divided by the book value?
- Dilution – Portfolio value
You own 5,000 shares of ABC Co. This represents a
20% ownership position. The current market price of ABC stock is $40 a share.
By what percentage will your portfolio value change
if the company sells an additional 5,000 shares of stock at $38 a share and you
do not buy any?
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