Exam 14: Raising Equity Capital

Use the table for the question(s)below. David founds a company and goes through the investment rounds shown below: He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0. -An IPO is offered at $23 per share for 12 million shares.The IPO underwriters had a spread of 6%.What proceeds did the firm receive from the IPO?

Who benefits from IPO underpricing?

A restriction that prevents existing shareholders from selling their shares for some period after an IPO is called:

Moon Company plans to issue 10 million shares in a seasoned equity offering.The owner,Ken Moon,plans to sell 4 million shares as part of the offering.Which of the following is TRUE regarding the seasoned equity issue?

Use the table for the question(s)below. David founds a company and goes through the investment rounds shown below: He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0. -An IPO is offered at $17 per share for 3 million shares.The IPO underwriters had a spread of 7%.What price did the underwriters pay per share of the IPO firm?

Melissa founded her company using $100,000 of her own money,issuing herself 50,000 shares of stock.An angel investor bought an additional 30,000 shares for $75,000.She now sells another 30,000 shares to a venture capitalist for $450,000.What percentage of the firm does Melissa now own?