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2
3
4
5
6
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8
9
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Gross proceeds = $32.258 million
b. Given the target net proceeds, what amount of gross proceeds are required?
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30
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Percentage of total post-IPO value required by new shareholders = 13.441%
d. How many new shares must be sold in the IPO to provide the percentage of ownership required by the new shareholders? How many
total shares will be outstanding after the IPO?
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Offer price = POffer = $17.31
e. Based on number of new shares sold in the IPO and the total amount paid by the new shareholders, what is the offer price?
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A B C D E
Value of operations (VPre-IPO)$210 million
Number of existing shares (nExisting)12 million
Target net proceeds $30 million
Flotation costs (F) 7%
Solution
Chapter: 18
Problem: 8
Stock price before IPO = PPre-IPO = $17.50
Total value after the IPO = VPost-IPO = $240 million
Number of new shares = nNew = 1.863 million
Total number of shares after the IPO = 13.863 million
f. Based on total value of the company after the IPO and the total number of outstanding shares after the IPO, what is the intrinsic price
per share after the IPO?
Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC
has no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC’s intrinsic value of operations is $210
million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All
other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued
shares. Answer the following questions.
c. What is projected total value of LC immediately after the IPO? Based on the total amount paid by the shareholders purchasing new
shares in the IPO, what percentage of the total post-IPO value do you think the new shareholders require to justify their stock purchases?
a. What is the intrinsic stock price per share before the IPO?
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54
55
56
57
58
59
60
61
62
A B C D E
Price per share after the IPO = PPost-IPO = $17.31
The offer price and the post-IPO price are identical to one another, as they should be. If the intrinsic post-IPO price were to be less than the offer price,
then no one would be willing to purchase shares at the offer price. If the post-IPO price were to be greater than the offer price, then there would be excess
demand for the offer. The pre-IPO price is slightly greater than the offer and post-IPO price. The decline in the price is due to the fact that the existing
shareholders must bear the flotation costs.
g. Compare the pre-IPO price, the offer price, and the post-IPO price. Explain why they are similar of different. (No calculations are
required.)
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2
3
4
5
6
7
8
9
10
17
18
19
20
21
b. Given the target net proceeds, what amount of gross proceeds are required?
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29
30
31
32
d. How many new shares must be sold in the IPO to provide the percentage of ownership required by the new shareholders? How many
39
40
41
42
43
e. Based on number of new shares sold in the IPO and the total amount paid by the new shareholders, what is the offer price?
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F G H I
7/16/2015
total shares will be outstanding after the IPO?
f. Based on total value of the company after the IPO and the total number of outstanding shares after the IPO, what is the intrinsic price
per share after the IPO?
Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC
has no preferred stock, debt, or short–term investments. Based on its free cash flow projection, LC‘s intrinsic value of operations is $210
million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All
other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued
shares. Answer the following questions.
c. What is projected total value of LC immediately after the IPO? Based on the total amount paid by the shareholders purchasing new
shares in the IPO, what percentage of the total post–IPO value do you think the new shareholders require to justify their stock purchases?
a. What is the intrinsic stock price per share before the IPO?
53
54
55
56
57
58
59
60
61
62
F G H I
The offer price and the post–IPO price are identical to one another, as they should be. If the intrinsic post–IPO price were to be less than the offer price,
then no one would be willing to purchase shares at the offer price. If the post–IPO price were to be greater than the offer price, then there would be excess
demand for the offer. The pre–IPO price is slightly greater than the offer and post–IPO price. The decline in the price is due to the fact that the existing
shareholders must bear the flotation costs.
g. Compare the pre–IPO price, the offer price, and the post–IPO price. Explain why they are similar of different. (No calculations are
required.)