Chapter 2, Problem 1SE

a)

Summary Introduction

To discuss:

To calculate the total proceeds of IPO.

Introduction:

Initial public offering or IPO is the first public sale of a firm’s stock. IPO is usually made by small and growing companies that require additional capital.

b)

Summary Introduction

To discuss:

To calculate the percentage underwriter discount.

Introduction:

Initial public offering or IPO is the first public sale of a firm’s stock. IPO is usually made by small and growing companies that require additional capital. The underwriting discount is the fee paid to the underwriters by the issuing firm

c)

Summary Introduction

To discuss:

To calculate the dollar amount of the underwriting fee.

Introduction:

Initial public offering or IPO is the first public sale of a firm’s stock. IPO is usually made by small and growing companies that require additional capital. The underwriting discount is the fee paid to the underwriters by the issuing firm.

d)

Summary Introduction

To discuss:

To calculate the net proceeds of IPO.

Introduction:

Initial public offering or IPO is the first public sale of a firm’s stock. IPO is usually made by small and growing companies that require additional capital. The net proceeds is the difference between the total proceeds and the underwriting fees.

$\text{Net Proceeds}=\text{Total proceeds}-\text{total underwriting fee}$

e)

Summary Introduction

To discuss:

To calculate the IPO underpricing.

Introduction:

A public offering is defined as the sale of bonds or stocks to the general public when the company or firm that issues the share has to raise a large amount as capital. The percentage change from the final IPO offer price to the IPO market price on the first day in the market is known as IPO underpricing.

$\text{IPO underpricing}=\frac{\left(\text{Market price}-\text{Offer price}\right)}{\text{Offer price}}$

f)

Summary Introduction

To discuss:

To calculate the market capitalization.

Introduction:

A public offering is defined as the sale of bonds or stocks to the general public when the company or firm that issues the share has to raise a large amount as capital. The market capitalization is the total market value of the firm’s outstanding stock.

$\text{Market Capitalization}=\text{Market price}\times \text{Number of outstanding stocks}$