Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 18, Problem 3P
Benjamin Garcia’s start-up business is succeeding, but he needs $200,000 in additional funding to fund continued growth. Benjamin and an angel investor agree the business is worth $800,000 and the angel has agreed to invest the $200,000 that is needed. Benjamin presently owns all 40,000 shares in his business. What is a fair price per share and how many additional shares must Benjamin sell to the angel? Because the stock will be sold directly to an investor, there is no spread; the other flotation costs are insignificant.
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Benjamin Garcia’s start-up business is succeeding, but he needs $200,000in additional funding to fund continued growth. Benjamin and an angelinvestor agree the business is worth $800,000 and the angel has agreed toinvest the $200,000 that is needed. Benjamin presently owns all 40,000shares in his business. What is a fair price per share and how many additional shares must Benjamin sell to the angel? Because the stock will besold directly to an investor, there is no spread; the other flotation costsare insignificant.
Suppose Clinton decides to use $9,500 currently held as savings to make a financial investment.
One method of making a financial investment is the purchase of stock or bonds from a private company.
Suppose Arcadia, a biomedical research firm, is selling stocks to raise money for a new lab. This practice is called
finance. Buying a share
of Arcadia stock would give Clinton
the firm. In the event that Arcadia runs into financial difficulty,
will be paid first.
Suppose Clinton chooses to buy 250 shares of Arcadia stock.
Which of the following statements are correct? Check all that apply.
The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Arcadia stock.
Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Clinton's shares to decline.
The price of his shares will rise if Arcadia issues additional shares of stock.
Alternatively, Clinton could undertake their financial investment by purchasing bonds…
John has a great idea to setup a pie and pastie factory. He needs $200,000 to buy theequipment and to lease suitable premises for a year. He is not sure whether he should setup acompany and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank toraise those funds.Explain to him the advantages and disadvantages of both alternatives.
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Intermediate Financial Management (MindTap Course List)
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