What is the intrinsic value of Kelley stock price

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Problem - Kelley Corporation is considering an IPO. Kelley and its underwriter agree that the company is worth $500 million. Kelley's founders and early investors own 20 million shares of stock. Kelley has no debt, preferred stock, or short-term investments. The underwriters will charge a 7% spread. Kelly wishes to sell enough new shares so that the new investor will own 20% of the company after the IPO. Assume that the direct costs of the IPO are negligible.

Required -

a. How many shares should Kelley sell?

b. What is the intrinsic value of Kelley's stock price per share before the IPO?

c. What offer price is fair to Kelley's current owners and to the new shareholders?

Reference no: EM132731920

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