Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann
ID: 2772537 • Letter: Z
Question
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 $55 million. Zang currently has 4 million shares outstanding and will issue 1.1 million new shares. ESM charges a 7% spread.
What is the correctly valued offer price? Round your answer to the nearest cent.
$ million
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
Net proceeds=55/4*1.1=5
F=7%
Gross proceeds=net proceeds/(1-F)=5/(1-0.07)=5.3763
Vpost-ipo=Vpre-ipo+Net proceeds=55+5.3763(1-0.07)=59.99996
% required
gross proceeds/Npost-ipo=5.3763/59.99996=0.08956
n new=0.08956*4/(1-0.08956)=3.9348
Poffer=5.3763/3.9348=1.36
Pnet of spread=1.36*(1-0.07)=1.2648
Poffer=Vpre-ipo/F*nnew+nexising=55/(0.07*1+4)=13.51
Pnet of spread=13.51*(1-0.07)=12.57
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