AFM 373 Apple (1)

Bluesky.com, which currently is a privately held corporation, is making plans for future growth. The company’s financial manager has recommended that Bluesky“go public” by issuing common stock to raise the funds needed to support thegrowth. The current owners, who are the founders of the company, are concernedthat control of the firm will be diluted by this strategy. If Bluesky undertakes anIPO, it is estimated that each share of stock will sell for $5, the investment bankingfee will be 15 percent of the total value of the issue, and the costs to the companyfor items such as lawyer fees, printing stock certificates, SEC registration, and so onwill be approximately 1 percent of the total value of the issue.a. If the market value of the stock issue is $42 million, how much will Blueskybe able to use for growth?b. How many shares of stock will Bluesky have to issue if it needs to net$42 million for growth?c. The founders now hold all of the company’s stock—10 million shares. If thecompany…

Pellegrino Capital owns a call option which gives it the right to purchase shares in Apple at a price of $100 a share. Apple stock is trading in the market at $105. Pellegrino would like to profit today from this situation but is not permitted to exercise the option for another two weeks. Which of the following statements apply to this situation? i) Pellegrino must own a European call option.ii) Pellegrino must own an American call option.iii) Pellegrino should sell the option today if it feels the price of the stock will decline significantly over the next two weeks.iv) Pellegrino cannot profit today from a marked increase in volatility in the shares.

Just Right Incorporated is considering the option of an extra dividend versus a share repurchase and the impact of both decisions on the firm. Just Right plans to spend $85,000 in respect of both scenarios. Just Right’s current earnings are $2.10 per share, and the stock currently sells for $45 per share. Just Right currently has 5,000 shares outstanding.You own one share of stock in this company.If the company issues the dividend, what will your total investment be worth?

2. An analyst for Acme, R. Runner, has recommended that Peter the Anteater purchase shares in a private firm (a firm that is not traded on any exchange) called Dynamite Corp. Dynamite has 30% debt and 70% equity. R. Runner believes that Dynamite will generate a return of 10% over the next year. Since Y. Lee is new to the job, he decides to do a little research on his own. He finds a company, Explosions Unlimited, that has very similar business as Dynamite. Explosions has an equity beta of 1.05 and is composed of 40% debt and 60% equity. Should Peter the Anteater buy the stock? The expected return on the market is 12% and the expected risk-free rate is 5%.

Rally inc, is an all equity firm with assets worth $25B and 10B shares outstanding. Rally plans to borrow $10B and use funds to repurchase shares. Rally’s corporate tax rate is 35% and Rally plans to keep its outstanding debt equal to $10B permanently. What is the lowest price Rally can offer and have shareholders tender their shares?

Rally inc, is an all equity firm with assets worth $25B and 10B shares outstanding. Rally plans to borrow $10B and use funds to repurchase shares. Rally’s corporate tax rate is 35% and Rally plans to keep its outstanding debt equal to $10B permanently. Suppose Rally offers $2.75 per share to repurchase its shares. Would shareholders sell for this price?

Rally inc, is an all equity firm with assets worth $25B and 10B shares outstanding. Rally plans to borrow $10B and use funds to repurchase shares. Rally’s corporate tax rate is 35% and Rally plans to keep its outstanding debt equal to $10B permanently. Suppose Rally offers $3 per share, and shareholders tender their shares at this price. What will be Rally’s share price after the repurchase?

) Your firm has the following structure: you own all the shares of the Dixit paper cup company. Dixit has $2,000,000 of outstanding perpetual debt with a 10% coupon selling at par. Dixit is currently selling paper cups which produce earnings before interest of $210,000 per year. You receive the following offer from your engineer friend. He would help you liquidate Dixit’s assets and with the proceeds you could build solar powered scooters. Your financing would remain the same. You believe that there is a 75% chance that solar powered scooters would not be particularly successful. In this case they would generate only $100/year. However, there is a 25% chance that solar powered scooters would be very successful. In this case they would generate $500,000 per year. Assume your equity discount rate is 15%. Assume the firm pays no taxes.     b)  What is the value of the solar powered scooters investment assuming a 15% discount rate? c)  What is the value of your equity under each of these…

Hotshot Ltd. has been very successful in the past few years despite the recent pandemic.  They have decided to invest their extra cash in passive equity investments of other corporations to receive dividends or flip the shares for profit. Hotshot currently follows ASPE but are thinking of going public in 2022 to further expand their operations.  What accounting alternatives are available to Hotshot to account for their investments during 2021, and when they go public in 2022?

RST 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?

At the present time, Bogdan Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Bogdan has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $15 per share. If the investors pay $142.73 per share for their investment, then Bogdan's cost of preferred stock (rounded to four decimal places) will be

A founder owns 100% of her startup. She is offered an equity investment by a VC investor, accepts, and eventually undergoes one more round of financing with a new VC investor. The financing events are as follows: VC investor 1 steps in with $0.5 million at a pre-money value of $2 million; later, VC investor 2 contributes $3 million at a pre-money of $7 million. After the second round of investment, what is the worth in stock of the founder, of VC1, and of VC2? What percentage of the company does each own?

You invest in a company that has a debt equity ratio of 3:1. You decide to move your investment of $35,000 to a firm which is completely equity financed. The sales proceeds will partly finance your share purchase in the new firm. If you wish to enjoy the same earnings you enjoyed with the former firm. How many dollars worth of shares willyou need to buy in in this new firm.

You are an investor in Borrow-Happy Ltd., which has a debt-equity ratio of 3:1. Though you have had a good experience thus far, you are influenced by an expert's advice published in media and decide to move your investment to a firm called Equity-Safe Inc. which is completely equity financed. You will do this by selling off your shares worth $35,000 and use the sales proceeds to partly finance your share purchase in the new firm. If you wish to retain the same earnings that you enjoyed with Borrow-Happy Ltd. how many dollars' worth of shares you will need to buy in Equity-Safe Inc.? Provide supporting computations to your response.

You are considering acquiring a common share of Sahali Shopping Center Corporation that you would like to hold for 1 year. You expect to receive both $1.25 in dividends and $35 from the sale of the share at the end of the year. The maximum price you would pay for a share today is if you wanted .to earn a 12% return إختر أحد الخيارات $32.37 A $38.47 B $41.32 C $31.25 D

You have decided to retire and want to sell your shares in a closely held, all equity firm. The other shareholders have agreed to have the firm borrow $954,200 to purchase your 6,500 shares of stock at the current market value. The total number of shares outstanding is 30,000. What will be the new price per share after the repurchase?

Currently, it is 2022 and Luther Corporation is planning to take the firm public through an IPO. Luther has no debt and 40 million shares outstanding. It is about to issue 5 million new shares for sale in the IPO. The underwriter handling Luther’s initial offering charges 7% of the gross proceeds as an underwriting fee. Luther forecasts that the 2023 cash flow from operations will be $450 million.     The underwriter advises Luther that the prices of other recent IPOs have been set such that the average cash flow multiple based on the 2023 forecasted cash flow from operations is 2. Assuming Luther is set at a price that implies a similar multiple, what will Luther’s IPO price per share be? How much will Luther raise from the IPO?       Assume that the IPO is successful and that Luther shares sell for $35 each immediately after the offering:   Who benefits from this price increase? Who lost, and why?…