Financial Management: Theory & Practice
Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
Question
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Chapter 18, Problem 6SP

a.

Summary Introduction

To calculate:

Intrinsic stock price per share before IPO

b.

Summary Introduction

To calculate:

Gross proceeds

c.

Summary Introduction

To calculate:

Total value after IPO and percentage of the total post-IPO value required by new shareholders

d.

Summary Introduction

To calculate:

Number of new shares and total shares outstanding after the IPO

e.

Summary Introduction

To calculate:

Offer price per share

f.

Summary Introduction

To calculate:

Price per share after IPO

f.

Summary Introduction

To calculate:

Price per share after IPO

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Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?
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