Chapter 1, Problem 1OR

Summary Introduction

To determine: The percentage of drop in the F Company’s shares in its first year as a public company.

Answer to Problem 1OR

The percentage of drop in the F Company’s shares in its first year as a public company is 31.58%.

Explanation of Solution

Given information:

F Company has sold its share at a price of $38 each in its IPO. The price of same stock after one year was $26.

The formula to compute the percentage fall in the shares price is as follows:

$\text{Percentage fall in shares price}=\frac{\text{Initial price}-\text{Current price of share}}{\text{Initial price}}\times 100$

Compute the percentage fall in the shares price:

$\begin{array}{c}\text{Percentage fall in shares price}=\frac{\text{Initial price}-\text{Current price of share}}{\text{Initial price}}\times 100\\ =\frac{\$38-\$26}{\$38}\times 100\\ =\frac{\$12}{\$38}\times 100\\ =31.58\%\end{array}$

Hence, the percentage fall in share price is 31.58%.

Summary Introduction

To determine: The total value of F Company’s stock immediately after the IPO and even after one year.

Introduction:

The private companies offer their stock for the first time to the public and this offering is termed as the initial public offerings (IPO). The private company that desire to become a publicly traded company usually offers the IPO.

Answer to Problem 1OR

The total value of F Company’s stock immediately after the IPO is $16,834 million.

The total value of F Company’s stock one year after IPO is $11,518 million.

Explanation of Solution

Given information:

F Company has sold its share at a price of $38 each in its IPO. The price of same stock after one year was $26. The Person MZ owner of the F Company owned 443 million shares after the IPO.

The formula to compute the total value of stock immediately after the IPO is as follows:

$\text{Total value of stock immediately after IPO}=\text{Initial price}\times \text{Number of shares outstanding}$

The formula to compute the total value of stock one year after the IPO is as follows:

$\text{Total value of stock immediately after one year of IPO}=\text{Current price}\times \text{Number of shares outstanding}$

Compute the total value of stock immediately after the IPO:

$\begin{array}{c}\text{Total value of stock immediately after IPO}=\text{Initial price}\times \text{Number of shares outstanding}\\ =\$38\times 443\\ =\$\text{16,834 million}\end{array}$

Hence, the total value of stock immediately after the IPO is $16,834 million.

Compute the total value of stock one year after the IPO:

$\begin{array}{c}\text{Total value of stock immediately after one year of IPO}=\text{Current price}\times \text{Number of shares outstanding}\\ =\$26\times 443\\ =\$11,518\text{ million}\end{array}$

Hence, the total value of stock one year after the IPO is $11,518 million.

Summary Introduction

To determine: The total personal loss of Person MZ over the year.

Answer to Problem 1OR

The total personal loss of Person MZ over the year is $5,316 million.

Explanation of Solution

Given information:

F Company has sold its share at a price of $38 each in its IPO. The price of same stock after one year was $26. The Person MZ owner of the F Company owned 443 million shares after the IPO.

The formula to compute the total personal loss over the year after the IPO is as follows:

$\text{Total personal loss}=\left(\begin{array}{c}\text{Total value of stock immediately after the IPO}\\ -\text{Total value of stock one year after the IPO}\end{array}\right)$

Compute the total personal loss over the year after the IPO:

$\begin{array}{c}\text{Total personal loss}=\left(\begin{array}{c}\text{Total value of stock immediately after the IPO}\\ -\text{Total value of stock one year after the IPO}\end{array}\right)\\ =\$16,834-\$11,518\\ =\$5,316\text{ million}\end{array}$

Hence, the total personal loss of Person MZ over the year is $5,316 million.