Profit or Loss on New Stock Issue

Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $450,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out answer completely. For example, 5 million should be entered as 5,000,000. Round answers to the nearest dollar. Loss should be indicated by a minus sign.

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 $56 million. Zang currently has 3 million shares outstanding and will issue 1.9 million new shares. ESM charges a 6% spread.

What is the correctly valued offer price? Do not round intermediate calculations. Round answer to the nearest cent.

$  _____________

How much cash will Zang raise net of the spread (use the rounded offer price)? Write out answer completely. For example, 5 million should be entered as 5,000,000. Round answer to the nearest dollar.

$ _____________

a. What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round answer to the nearest cent. $ _______  

b. What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round answer to the nearest cent. $______  

The trustee’s costs total $204,000, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.5 million is received from sale of the assets? Round answers for monetary values to the nearest dollar and for percentage values to the nearest whole number. If answer is zero, enter “0”. Enter answers as positive values.

Distribution of proceeds on liquidation:

Round answer for monetary value to the nearest dollar and for percentage value to two decimal places.

The remaining $ _______  will go to the common stockholders. They will receive only _______  % of the amount of equity on the balance sheet.