Pricing Stock Issues in an IPO Zang Industries has hired the investment banking

Question

Pricing Stock Issues in an IPO

Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang's current value of equity is $61 million. Zang currently has 3 million shares outstanding and will issue 1.6 million new shares. ESM charges a 6% spread.
What is the correctly valued offer price? Round your answer to the nearest cent.
$ _________

How much cash will Zang raise net of the spread? Round intermediate calculations to two decimal places. Round your answer to three decimal places. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000.
$ ______ million

Explanation / Answer

Zang's current value of equity =$61million

shares outstanding = 3million

Value per sahre = 20.33

correctly valued offer price = 61/ 4.6 = 13.26 (1-.06) = 12.46

cash raise net of the spread = 1.6 * 12.46 = 19.936

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