Problem 10-03 A company is going public at $18 and will use the ticker XYZ. The underwriters will charge a 7 percent spr
Posted: Tue Nov 16, 2021 8:14 am
Problem 10-03
A company is going public at $18 and will use the ticker XYZ.
The underwriters will charge a 7 percent spread. The company is
issuing 25 million shares, and insiders will continue to hold an
additional 50 million shares that will not be part of the IPO. The
company will also pay $2 million of audit fees, $2.5 million of
legal fees, and $700,000 of printing fees. The stock closes the
first day at $22. Now the company grants a 15 percent overallotment
option to the underwriter. The underwriter issues shares that are
backed by the entire overallotment option but has not yet exercised
the option.
Explain what will happen if the price of the stock increases to
$25.50. Describe the underwriter profits from the overallotment
option in your explanation. Enter your answer in millions. For
example, an answer of $1.23 million should be entered as 1.23, not
1,230,000. Do not round intermediate calculations. Round your
answer to two decimal places.
If the stock price increases to $25.50 in the secondary market,
the underwriter -Select-willwill notItem 1 exercise its
option and the underwriter profit will be
$ million.
Explain what will happen if the price of the stock decreases to
$14.50. Describe the underwriter profits from the overallotment
option in your explanation. Enter your answer in millions. For
example, an answer of $1.23 million should be entered as 1.23, not
1,230,000. Do not round intermediate calculations. Round your
answer to two decimal places.
If the stock price decreases to $14.50 in the secondary market,
the underwriter -Select-willwill notItem 3 exercise its
option and the underwriter profit will be
$ million.
A company is going public at $18 and will use the ticker XYZ.
The underwriters will charge a 7 percent spread. The company is
issuing 25 million shares, and insiders will continue to hold an
additional 50 million shares that will not be part of the IPO. The
company will also pay $2 million of audit fees, $2.5 million of
legal fees, and $700,000 of printing fees. The stock closes the
first day at $22. Now the company grants a 15 percent overallotment
option to the underwriter. The underwriter issues shares that are
backed by the entire overallotment option but has not yet exercised
the option.
Explain what will happen if the price of the stock increases to
$25.50. Describe the underwriter profits from the overallotment
option in your explanation. Enter your answer in millions. For
example, an answer of $1.23 million should be entered as 1.23, not
1,230,000. Do not round intermediate calculations. Round your
answer to two decimal places.
If the stock price increases to $25.50 in the secondary market,
the underwriter -Select-willwill notItem 1 exercise its
option and the underwriter profit will be
$ million.
Explain what will happen if the price of the stock decreases to
$14.50. Describe the underwriter profits from the overallotment
option in your explanation. Enter your answer in millions. For
example, an answer of $1.23 million should be entered as 1.23, not
1,230,000. Do not round intermediate calculations. Round your
answer to two decimal places.
If the stock price decreases to $14.50 in the secondary market,
the underwriter -Select-willwill notItem 3 exercise its
option and the underwriter profit will be
$ million.