1) You are a big fan of investing in IPOs and three new IPOs are expected to hit the market this month. Assume the IPO price is $40/share for all three IPOs. When the three IPOs hit the market, they have the following characteristics: IPO Price 1st Day Market Price IPO A $40 $43 IPO B $40 $52 IPO C $40 $55 What was the average underpricing of the three IPOs? Compute the underpricing of each IPO, then take the average of the three. 2) You purchased a machine for $100,000 and you depreciate it using straight-line depreciation over its 10-year life. If you sell the machine at the end of year 6 for $22,000, what will be your after-tax salvage value? Your tax rate is 0.21? 3) You are beginning a new 5-year project that will require $90,969 in initial net working capital (t=0), which you will get back at the end of year 5. If your WACC for this project is 10%, what is the effect of the net working capital on the NPV of the project? 4) If your WACC is 10%, calculate the NPV of a 5-year project with the following cash flows: Initial cost of $736,786 Initial net working capital of $63,925, which will be returned at the end of the project After-tax salvage value of $82,368 at the end of the project Net Operating Cash Flows (Net OCF) of $172,593 per year.
1) You are a big fan of investing in IPOs and three new IPOs are expected to hit the market this month. Assume the IPO price is $40/share for all three IPOs. When the three IPOs hit the market, they have the following characteristics:
|
|
IPO Price |
1st Day Market Price |
|
IPO A |
$40 |
$43 |
|
IPO B |
$40 |
$52 |
|
IPO C |
$40 |
$55 |
What was the average underpricing of the three IPOs? Compute the underpricing of each IPO, then take the average of the three.
2) You purchased a machine for $100,000 and you
3) You are beginning a new 5-year project that will require $90,969 in initial net working capital (t=0), which you will get back at the end of year 5. If your WACC for this project is 10%, what is the effect of the net working capital on the
4)
If your WACC is 10%, calculate the NPV of a 5-year project with the following cash flows:
Initial cost of $736,786
Initial net working capital of $63,925, which will be returned at the end of the project
After-tax salvage value of $82,368 at the end of the project
Net Operating Cash Flows (Net OCF) of $172,593 per year.
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