Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 20, Problem 5CQ
Summary Introduction
To determine: Whether Z will be upset over G for underpricing.
Underpricing:
The underpricing term refers to the offering of the stocks or the bond at a low price than before. The stocks or the debt are said to be underpriced when they are traded at a lower price than on which it was issued first for trade.
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Students have asked these similar questions
Margoles Publishing recently completed its IPO. The stock was offered at $14.00 per share. On the first day of trading, the stock closed at $19.00 per share.
a. What was the initial return on Margoles?
b. Who benefited from this underpricing? Who lost, and why?
a. What was the initial return on Margoles?
The initial return was 1%. (Round to one decimal place.)
b. Who benefited from this underpricing? (Select the best choice below.)
OA. Owners of other shares outstanding (not part of the IPO) and underwriters.
O B. The company and underwriters.
O C. Investors who bought shares at the IPO price of $14.00/share and investment banks (indirectly from future business)
O D. The company and owners of other shares outstanding (not part of the IPO).
Who lost? (Select the best choice below.)
0 A. Owners of other shares outstanding (part of the IPO)
O B. Owners of other shares outstanding (not part of the IPO)
O C. Both of the above.
0 D. Investors who bought shares at the IPO price of…
On August 19, 2004, Google completed its IPO of 18.5 million shares to the initial investors at $80 per share. The closing price of the stock that same day was $100.00. What was the dollar value of the underpricing associated with the Google IPO? (Round answer to 0 decimal places, e.g. 5,275.)
Felton
Publishing recently completed its IPO. The stock was offered at
$14.07
per share. On the first day of trading, the stock closed at
$19.97
per share.
a. What was the initial return on
Felton?
b. Who benefited from this underpricing? Who lost, and why?
Chapter 20 Solutions
Corporate Finance
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