Reference no: EM132898852
1. Problem (Profit or Loss on New Stock Issue)
Profit or Loss on New Stock Issue
Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $200,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answers to the nearest dollar. Loss should be indicated by a minus sign.
a. $4.75 per share?
b. $6 per share?
c. $4.25 per share?
2. Problem (Pricing Stock Issues in an IPO)
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 $59 million. Zang currently has 3 million shares outstanding and will issue 1.1 million new shares. ESM charges a 7% spread.
What is the correctly valued offer price? Do not round intermediate calculations. Round your answer to the nearest cent.
How much cash will Zang raise net of the spread (use the rounded offer price)? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.
Tax Shield Value
Wilde Software Development has a 10% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde's tax rate is 25%.
Year 1 Year 2 Year 3
Interest expenses $80 $100 $130
a. What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent.
b. What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent.
3. Problem (Liquidation)
Liquidation
Southwestern Wear Inc. has the following balance sheet:
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Current assets Fixed assets
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$1,875,000 Accounts payable
1,875,000 Notes payable
Subordinated debentures
Total debt
Common equity
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$ 375,000
750,000
750,000
$1,875,000
1,875,000
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Total assets
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$3,750,000 Total liabilities & equity $3,750,000
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The trustee's costs total $279,500, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.6 million is received from sale of the assets? Round your answers for monetary values to the nearest dollar and for percentage values to the nearest whole number. If your answer is zero, enter "0". Enter your answers as positive values.
Distribution of proceeds on liauidation:
Proceeds from the sale of assets
Less:
1. First mortgage (paid from the sale of fixed assets)
2. Fees and expenses of bankruptcy
3. Wages due to workers within 3 months of bankruptcy
4. Taxes due to federal, state, and local governments
5. Unfunded pension liabilities
Funds available for distribution to general creditors $
Distribution to general creditors:
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General Creditors'
Claims
(1)
Accounts payable Notes payable Subordinated debentures
Total
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Amount of Claim
(2)
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Application of 100%
Distribution
(3)
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Distribution after
Subordination
Adjustment
(4)
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Percentage of
Original Claim
Received
(5)
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$
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0/0
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$
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Round your answer for monetary value to the nearest dollar and for percentage value to two decimal places.
The remaining $ _____ will go to the common stockholders. They will receive only___ % of the amount of equity on the balance sheet.