Start-up company , Managerial Economics

Let consider the economy (above) again where the following set of stocks is traded:
  x1=(2,2,0)    x2=(1,0,3)  x3=(0,2,4)       
for the prices (p1, p2, p3)=(1, 1, 1).
Assume a start-up company wants to go public. The firm has total costs of $10,000 at date t=1 and sales of $20,000 in state 1, $30,000 in state 2, and $100.000 in state 3. The firm needs to issue 1,000 IPO shares. (A share is endowed with a cash flow right of 0.1% of the total
profits of the firm.) The underwriter suggests an IPO price of $26 per share. Will this IPO be successful, i.e. will there be a positive demand for the shares?

Posted Date: 3/25/2013 2:48:52 AM | Location : United States

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