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Homework answers / question archive / 1) A best efforts IPO underwriting comprised 5
1) A best efforts IPO underwriting comprised 5.8 million shares at an offer price of $28 per share. The underwriter's fee was set at 5.85 percent. How many shares were sold if the issuer received $84,324,892?
A. 2,894,143
B. 3,432,823
C. 3,198,729
D. 4,242,982
1. A firm's common stock has a required return of 12 percent. The firm paid a dividend of $1.24 last year and has stated that future dividends will increase by nine percent for the following four years. Thereafter, the dividend growth rate will be five percent. What's one share of the stock worth to you today?
A. $58.22
B. $45.44
C. $63.45
D. $53.54
1. API has just paid an annual dividend of $1.39 per share and expects to increase it by 3.5 percent annually for the foreseeable future. Calculate the current value of API's common stock given a discount rate of 6 percent.
A. $58.34
B. $56.30
C. $57.55
D. $55.60
1. Given the following information, what is the value of the advance/decline on the second day of this 4-day period?
Issues advancing issues declining
Day 12,322 2,589
Day 22,142 2,112
Day 32,598 2,989
Day 41,887 3,112
A. 568
B. 824
C. -628
D. -432
1) Computation of Total Number of Shares Sold:
Underwriter's Fee = 5.85%
Percentage of Net Amount Received = 1 - 0.0585 = 0.9415 = 94.15%
Total amount received by issuer = $84,324,892
Total amount of issued shares = $84,324,892/0.9415 = $89,564,410
Issue price per share = $28
Hence,
Total Number of Shares Sold = $89,564,410/$28 = 3,198,729 shares
So, the correct option is C "3,198,729".
2) PFA
3) Computation of Current Value of API's Common Stock:
Current Value of API's Common Stock = Dividend for Next Year/(Required Rate of Return - Growth Rate)
= $1.39*(1+3.5%)/(6%-3.5%)
= $1.44/2.5%
Current Value of API's Common Stock = $57.55
So, the correct option is C "$57.55".
4) Computation of Value of the advance/decline on the second day of this 4-day period:
= 2,322 - 2,589 + 2,142 - 2,122
= -237
The option is not given in question.
