Roger Harkel, CEO of Bestafer, Inc. seeks to raise $4 million in a private placement of equity in his early stage venture. Harkel conservatively projects net income of $5 million in year five and knows that comparable companies trade at a price earnings ratio of 20X. If the company has 1,000,000 shares outstanding before the private placement, what price per share should she agree to pay if her required rate of return is 50%? (Note: Assume investment is in standard preferred stock with no dividends and a conversion rate to common of 1:1. Round off to the nearest integer.)

Roger Harkel, CEO of Bestafer, Inc. seeks to raise $4 million in a private placement of equity in his early stage venture. Harkel conservatively projects net income of $5 million in year five and knows that comparable companies trade at a price earnings ratio of 20X. If the company has 1,000,000 shares outstanding before the private placement, what price per share should she agree to pay if her required rate of return is 50%? (Note: Assume investment is in standard preferred stock with no dividends and a conversion rate to common of 1:1. Round off to the nearest integer.)

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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Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang's current value of equity is $55 million. Zang currently has 3 million shares outstanding and will issue 2 million new shares. ESM charges a 5% spread. What is the correctly valued offer price? Do not round intermediate calculations. Round your answer to the nearest cent.
Starware Software was founded last year to develop software for gaming applications. The founder initially invested $700,000 and received 9 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $1.20 million and wants to own 13% of the company after the investment is completed. a. How many shares must the venture capitalist receive to end up with 13% of the company? What is the implied price per share of this funding round? b. What will the value of the whole firm be after this investment (the post-money valuation)? a. How many shares must the venture capitalist receive to end up with 13% of the company? The venture capitalists will receive million shares. (Round to three decimal places.)
Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $58 per share. She borrows $2,200 from her broker to help pay for the purchase. The interest rate on the loan is 12%. Required:a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to $48 per share by the end of the year, what is the remaining margin in her account? c. If the maintenance margin requirement is 30%, will she receive a margin call?multiple choice Yes No Correct d. What is the rate of return on her investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $58 per share. She borrows $2,200 from her broker to help pay for the purchase. The interest rate on the loan is 12%. Required:a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to…
Wuttke Corp. wants to raise $4.8 million via a rights offering. The company currently has 580,000 shares of common stock outstanding that sell for $85 per share. Its underwriter has set a subscription price of $40 per share and will charge the company a spread of 6 percent. If you currently own 2,500 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? Please answer fast I give you upvote.
Nougat Corporation wants to raise $4.9 million via a rights offering. The company currently has 550,000 shares of common stock outstanding that sell for $50 per share. Its underwriter has set a subscription price of $25 per share and will charge the company a spread of 5 percent. If you currently own 3,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) I keep getting the wrong answer, I get $2,430 and its not correct, the answer 20130 is also not correct.
Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang’s current value of equity is $60 million. Zang currently has 4 million shares outstanding and will issue 1 million new shares. ESM charges a 7% spread. What is the correctly valued offer price, rounded to the nearest penny? How much cash will Zang raise net of the spread (use the rounded offer price)?
Starware Software was founded last year to develop software for gaming applications. The founder initially invested $800,000 and received 12 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $1.00 million and wants to own 13% of the company after the investment is completed. a. How many shares must the venture capitalist receive to end up with 13% of the company? What is the implied price per share of this funding round? b. What will the value of the whole firm be after this investment (the post-money valuation)?
Todd Winningham IV has $5,700 to invest. He has been looking at Gallagher Tennis Clubs Inc. common stock. Gallagher has issued a rights offering to its common stockholders. Six rights plus $64 cash will buy one new share. Gallagher's stock is selling for $82 ex- rights. a-1. How many rights could Todd buy with his $5,700? (Do not round intermediate calculations and round your answer to the nearest whole number.) Number of rights a-2. Alternatively, how many shares of stock could he buy with the same $5,700 at $82 per share? (Do not round intermediate calculations and round your answer to the nearest whole number.) Number of shares b. If Todd invests his $5.700 in Gallagher rights and the price of Gallagher stock rises to $90 per share ex-rights, what would his dollar profit on the rights be? (First compute profit per right.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Dollar profit
Nougat Corporation wants to raise $4.9 million via a rights offering. The company currently has 550,000 shares of common stock outstanding that sell for $50 per share. Its underwriter has set a subscription price of $25 per share and will charge the company a spread of 5 percent. If you currently own 3,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) I keep getting the wrong answer, I get $2,430 and its not correct, the answer 20130 is also not correct, and the answer 20459.29 is also not correct
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?
Prahm Corp. wants to raise $4.7 million via a rights offering. The company currently has 530,000 shares of common stock outstanding that sell for $55 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a spread of 6 percent. If you currently own 5,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Sale proceeds
Lemansky Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure with 35 percent debt. There are currently 5,000 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $29,680. The interest rate on new debt is 11 percent and there are no taxes. a. Rebecca owns $10,000 worth of stock in the company. If the firm has a 100 percent payout, what is her cash flow? Note: Do not round intermediate calculations and round your answer to 2 decimal places, 32.16. b. What would her cash flow be under the new capital structure assuming that she keeps all of her shares? Note: Do not round intermediate calculations and round your answer to 2 decimal places, 32.16. c. Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow. Note: Do not round intermediate calculations and round your answer to the…

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