Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Initial Return Earned by Investors

Initial Return Earned by Investors

Ratings: (0)|Views: 236 |Likes:
Published by ClassOf1.com
"Company A is executing an initial public offering with the following characteristics. The company will sell 10 million shares at an offer price of $25 per share, the underwriter will charge a 7 percent underwriting fee, and the shares are expected to sell for $32 per share by the end of the first-day’s trading. Assuming this IPO is executed as expected answer the following:
a) Calculate the initial return earned by investors who are allocated shares in the IPO.
b) How much will WCMC receive from this offering?
c) What is the total cost (underwriting fee and under pricing) of this issue to WCMC?
"
"Company A is executing an initial public offering with the following characteristics. The company will sell 10 million shares at an offer price of $25 per share, the underwriter will charge a 7 percent underwriting fee, and the shares are expected to sell for $32 per share by the end of the first-day’s trading. Assuming this IPO is executed as expected answer the following:
a) Calculate the initial return earned by investors who are allocated shares in the IPO.
b) How much will WCMC receive from this offering?
c) What is the total cost (underwriting fee and under pricing) of this issue to WCMC?
"

More info:

Categories:Types, School Work
Published by: ClassOf1.com on Feb 01, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

02/01/2013

pdf

text

original

 
 
Finance
LEARN TO EXCEL
Homework Help
24/7 Support
Step-by-Step Solutions
Experienced TutorsDetailed Explanationwww.classof1.com/homework-help/financeToll Free: 1-877-252-7763
 
 
Sub: Finance Topic: Cost of Capital
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
www.classof1.com/homework-help/finance 
Question:Initial Return Earned by Investors
Company A is executing an initial public offering with the following characteristics. The company willsell 10 million shares at an offer price of $25 per share, the underwriter will charge a 7 percentunderwriting fee, and the shares are expected to sell for $32 per share by the end of the first-
day’s
trading. Assuming this IPO is executed as expected answer the following:a) Calculate the initial return earned by investors who are allocated shares in the IPO.b) How much will WCMC receive from this offering?c) What is the total cost (underwriting fee and under pricing) of this issue to WCMC?
 
 
Sub: Finance Topic: Cost of Capital
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
www.classof1.com/homework-help/finance 
Solution:
a)Initial return earned by investors who are allocated shares in the IPO.
Investment made by the investor in one share = Purchase price = $25Selling price expected at the end of first-
day’s trading = $32
 So profit per share = $ 7Thus return for investor = 7/25 =
28 %
 
b)How much will WCMC receive from this offering?
Total No of shares issued = 10 millionPrice per share collected = $25So total amount collected from investors = 25*10 million = $ 250 million.Under-writing fee charged by underwriter = 7%So underwriting fee paid from collection = 7%*250million = $17.50 million.The net proceeds =$ 250m
 –
$ 17.50 m = $ 232.50 million.So, Net amount that will be received by WCMC =
$ 232.50 million
.
c)What is the total cost (underwriting fee and under pricing) of this issue to WCMC?
Total cost of the issue:Underwriting fee = $17.50 millionUnder-pricing value = profits earned by investors at end of I day= $7*10 million = $70 million.

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->