1. Explain the phenomena of IPO udnerpricing. Do you think that IPO underpricing is a sign of market inefficiency? 2. Ca

[answerhappygod]

1. Explain the phenomena of IPO udnerpricing. Do you think that
IPO underpricing is a sign of market inefficiency?
2. Carlyle plc and Mullan plc have both announced IPOs at £40
per share. One of these is undervalued by £11 and the other is
overvalued by £6, but you have no way of knowing which is which.
You plan on buying 1,000 shares of each issue. If an issue is
underpriced, it will be rationed, and only half your order will be
filled. If you could gen 1,000 shares in Carlyle and 1,000 shares
in Mullan, what would your profit be? What profit do you actually
expect? What principle have you illustrated?
3. ABC plc decides to raise £160 million through a right
issue. The firm plans to the rights issue at a discount of 20 per
cent to the current market price of £5. The company has 100 million
shares outstanding.
(i) what is the value of a right?
(ii) What are the current terms of the rights issue?
(iii) How would an investor with 10,000 shares be affected if
they:
4. A company’s equity currently sells for $45 per share.
Last week the firm issued rights to raise new equity. To purchase a
new share, a shareholder must remit £10 and three rights. (a) what
is the ex-rights share price? (b) what is the price of one right?
(c) When will the price drop occur? Why will it occur then?