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a. What percentage of the company will Jennifer own after the issue? Note: Round your answer to the nearest whole percentage. b. What will her holding be worth at the end of the first day's trading? c. Suppose the issue had been priced at $80. How many shares would the company have needed to sell to raise the same gross proceeds from the IPO?

a. What percentage of the company will Jennifer own after the issue? Note: Round your answer to the nearest whole percentage. b. What will her holding be worth at the end of the first day's trading? c. Suppose the issue had been priced at $80. How many shares would the company have needed to sell to raise the same gross proceeds from the IPO?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Fishwick Enterprises has 230,000 shares outstanding, half of which are owned by Jennifer Fishwick and half by her cousin. The two cousins have decided to sell 120,000 shares in an IPO. Half of these shares would be issued by the company to raise new cash, and half would be shares that are currently held by Jennifer Fishwick. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first day's trading. Suppose also that investors would have been prepared to buy the issue at $80. a. What percentage of the company will Jennifer own after the issue? Note: Round your answer to the nearest whole percentage. b. What will her holding be worth at the end of the first day's trading? c. Suppose the issue had been priced at $80. How many shares would the company have needed to sell to raise the same gross proceeds from the IPO? d. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first day's trading, what would be Jennifer's wealth (cash plus the value of her remaining holding)? Note: Enter your answer in millions rounded to 1 decimal place. e. What is the cost of underpricing to Jennifer in dollars? Note: Enter your answer in millions rounded to 1 decimal place. a. Percentage of ownership b. Stock value c. Number of shares d. Total wealth e. Cost of underpricing shares % million million
Transcribed Image Text:Fishwick Enterprises has 230,000 shares outstanding, half of which are owned by Jennifer Fishwick and half by her cousin. The two cousins have decided to sell 120,000 shares in an IPO. Half of these shares would be issued by the company to raise new cash, and half would be shares that are currently held by Jennifer Fishwick. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first day's trading. Suppose also that investors would have been prepared to buy the issue at $80. a. What percentage of the company will Jennifer own after the issue? Note: Round your answer to the nearest whole percentage. b. What will her holding be worth at the end of the first day's trading? c. Suppose the issue had been priced at $80. How many shares would the company have needed to sell to raise the same gross proceeds from the IPO? d. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first day's trading, what would be Jennifer's wealth (cash plus the value of her remaining holding)? Note: Enter your answer in millions rounded to 1 decimal place. e. What is the cost of underpricing to Jennifer in dollars? Note: Enter your answer in millions rounded to 1 decimal place. a. Percentage of ownership b. Stock value c. Number of shares d. Total wealth e. Cost of underpricing shares % million million
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