Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is
a. If Walton and Company sells its shares to the dealer group, what will the percentage return be?
b. If Walton and Company performs the dealer’s function also and sells to brokers, what will the percentage return be?
c. If Walton and Company fully integrates its operation and sells directly to the public, what will its percentage return be?
Want to see the full answer?
Check out a sample textbook solutionChapter 15 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
- You would like to sell 200 shares of Xenith Bankshares, Inc. (XBKS). The current ask and bid quotes are $4.66 and $4.62, respectively. You place a limit sell order at $4.65.If the trade executes, how much money do you receive from the buyer?arrow_forwardDark Creek Corporation's CEO is selecting between two mutually exclusive projects. Thecompany needs to make a $3,500 payment to bondholders at the end of the year. To minimizeagency costs, the firm's bondholders decide to use a bond covenant to stipulate that thebondholders can demand an additional payment if the company chooses to take on the high-volatility project. How much additional payment to bondholders would make stockholdersindifferent between the two projects? Cash flows pertaining to the two projects are shown inthe table below. can you hand write pleasearrow_forwardBigShark wants to acquire SmallGuppy for $206,250.00 in the form of either cash or stock. The synergy value of the deal is $30,000.00. BigShark has 30,000 shares outstanding at a price of $65.00 a share. SmallGuppy has 18,000 shares outstanding at a price of $24.00 a share. What is the NPV of acquiring SmallGuppy when stock financing is used? a) $ 253,929.57 b) $217, 184.54 c) $309, 883.91 d) $231,286.96 e) $279,427.13arrow_forward
- Astro Investment Bank offers Lunar Vacations the following options on its initial public sale of equity: (a) a best efforts arrangement whereby Astro will keep 2.4% of the retail sales or (b) a firm commitment arrangement of $10,100,000. Lunar plans on offering 1,000,000 shares at $11.36 per share to the public. If it sells 100% of the shares, which is the better choice for Lunar Vacations? Which is the better choice for Astro InvestmentBank?arrow_forwardRST Inc. wants to raise $30M in an IPO and chose Soldman Gachs to underwrite the offering. The two sides agreed that Soldman Gachs would sell 5M shares to the public and provide $30M in net proceeds to RST. The out of pocket expenses incurred by Soldman Gachs were $500,000. What profit or loss did Security Brokers incur if the issue were sold to the public at $8 / share? What about at $5.50 / share?arrow_forwardAmherst Corporation, an investment banking company, often has extra cash to invest. Suppose Amherst buys900 shares of Hurricane Corporation stock at $57 per share, representing less than 5% ofHurricane’s outstanding stock. Amherst expects to hold the Hurricane stock for one month andthen sell it. The purchase occurs on December 15, 2018. On December 31, the market price of ashare of Hurricane stock is $58 per share.Requirements1. What type of investment is this for Amherst? Give the reason for your answer.2. Record Amherst’s purchase of the Hurricane stock on December 15 and the adjustment tomarket value on December 31.3. Show how Amherst would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018.arrow_forward
- Dark Creek Corporation's CEO is selecting between two mutually exclusive projects. Thecompany needs to make a $3,500 payment to bondholders at the end of the year. To minimizeagency costs, the firm's bondholders decide to use a bond covenant to stipulate that thebondholders can demand an additional payment if the company chooses to take on the high-volatility project. How much additional payment to bondholders would make stockholdersindifferent between the two projects? Cash flows pertaining to the two projects are shown inthe table below.arrow_forwardIn the Republic of Atlantis the regulators decide to allow private placement of equity (see problem set 2 extra questions). A firm called Fish Inc. currently trades in their stock market at a price of $3 (Atlantic dollars) with 100 million shares outstanding. The manager currently needs to raise extra $300m. They decide to do that in a private placement and sell the shares to an individual investor at a discount of 20% of current share price. Which of the following statements is (are) true: (i) Private placements are fair. (ii) The company will issue 125m extra shares. (iii) Pre-existing investors will lose $34p per share.Required to answer. Single choice.arrow_forwardIf an investor buys shares in a closed-end investment company for $46 and the net asset value is $53, what is the discount? If the company distributes $1, the net asset value rises to $58, and the investor sells the shares for a premium of 5 percent over the net asset value, what is the percentage earned on the investment?arrow_forward
- The Tennis Shoe Company has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $56 to $54.30 ($56 is the rights-on price; $54.30 is the ex-rights price, also known as the when-issued price). The company is seeking $17.5 million in additional funds with a per-share subscription price equal to $41. How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.) (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)arrow_forwardABC Trading wants to raise equity to fund an acquisition of a small company (XYZ). ABC is considering two choices: (i) using an underwriting syndicate, (ii) a rights offering. The price of ABC stock is $60 and there are 250 million shares outstanding. (a) ABC issues a rights offer to its existing stockholders that lets them purchase stock at the price of $58 each. (Note: stockholders will receive one right for each 12.5 shares they own, so only 20 million shares can be issued). What are the net proceeds to the company if it sells 20 million shares using the rights offering?arrow_forwardConsider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T Shares outstanding 6,400 1,600 Price per share $ 48 $ 19 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,900. a. If Firm T is willing to be acquired for $21 per share in cash, what is the NPV of the merger? b. What will the price per share of the merged firm be assuming the conditions in (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If Firm T is willing to be acquired for $21 per share in cash, what is the merger premium? d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T's shares, what will the price per share of the merged firm be? (Do not round intermediate calculations and round your answer to 2…arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education