Your investment bankers price your IPO at $14.52 per share for 9.9 million share
ID: 2592022 • Letter: Y
Question
Your investment bankers price your IPO at $14.52 per share for 9.9 million shares. If the price at the end of the first day of trading is $17.17 per share,
a. what was the percentage underpricing?
b. how much money did the firm miss out on due to underpricing?
a. what was the percentage underpricing?
As a percent of the offering price, the underpricing is ________%. (Round to one decimal place.)
b. how much money did the firm miss out on due to underpricing?
The forgone money will be $_____________million.(Round to one decimal place.)
Explanation / Answer
A.
Underpricing is the pricing of an initial public offering (IPO) below its market value. When the offer price is lower than the price of the first trade, the stock is considered to be underpriced.
IPO Price = $14.52 Per share
Price of the first day trade = $ 17.17 per share
Percentage of Under pricing = (Price of the first day trade - IPO Price) / IPO Price
= ($17.17 - $14.52) / $14.52
=0.18251 ~ 18.3%
b. Determination of money missout by firm due to under pricing
= Number of Shares issued in IPO X Difference between Price of the first day trade and IPO Price
= 9.9 Millions X ( ($17.17 - $14.52)
= 9.9 Millions X $ 2.65
= $26.235 ~ 26.2 Millions
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