Reference no: EM132433992

1A. The Sullivan Co. needs to raise $66.9 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $69 per share and the company's underwriters charge a spread of 9.5 percent. How many shares need to be sold? (Do not round intermediate calculations and enter your answer in shares, not millions of shares, rounded to the nearest whole number, e.g., 1,234,567.)

Number of shares offered__________

1B. Suppose the current exchange rate for the Russian ruble is RUB 34.52. The expected exchange rate in three years is RUB 37.76. What is the difference in the annual inflation rates for the United States and Russia over this period? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

1C. The Koepka Co. and the Johnson Co. have both announced IPOs at $42 per share. One of these is undervalued by $10.00, and the other is overvalued by $4.75, but you have no way of knowing which is which. You plan on buying 1,100 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.

a. Assuming you could get 1,100 shares in Koepka and 1,100 shares in Johnson, what would your profit be? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

b. What profit do you actually expect?  (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. What principle have you illustrated?

1D. The Sugarland Co. has just gone public. Under a firm commitment agreement, the company received $33.30 for each of the 4.23 million shares sold. The initial offering price was $35.70 per share, and the stock rose to $43.60 per share in the first few minutes of trading. The company paid $918,000 in legal and other direct costs and $276,000 in indirect costs. What was the flotation cost as a percentage of funds raised? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)