Managerial Finance

Chapter I 8 Public and Private Financing: Initial Offerings, Seasonetl Offerings, and Investment Banks The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? a. $5 per share b. $6 per share c. $4 per share The Beranek Company, whose stock price is now $2,5, needs to raise $20 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $22 per share because of signaling effects. 'Ihe underwriters' compensation will be 5% of the issue price, so Beranek will net $20.90 per share. The firm wili also incur expenses in the amount of $150,000. How many shares must the firm sell to net $20 million aller underwriting and flotation expenses? Intermediate - (1s-3) Pricing Stock Issues . Benjamin Garcia's start-up business is succeeding, but he needs $200,000 in additional $*di"g to fund continued growth. Benjamin and an angel investor agree the business is $800,000 and the angel has agreed to invest the $200,000 that is Benjamin and how P owns all 40,000 shares in his business. What is a fair price per many shares must Benjamin sell to the angel? Because the will be sold directly to an , there is no spread; the other flotation costs are insignificant. (18-4) Nerru Stock Issue Bynum and Inc. (B&C), a small jewelry manufactureryfas been successfirl and has enjoyed a positive common stock, and it trend. Now B&C is planning ta1{o public with an issue of problem of setting an te price for the stock. The company and its investment believe that the is to conduct a valuation and select several relevant comparisons. with publicly common stock and to make Several jewehy manufacturers are to B&C with respect to product mix, asset composition, and debt/equity Of these companies, Abercrombe Jewelers and Gunter Fashions are most si When analyzing the following data, assume that the most recent year has been y "normal" in the sense that it was neither especiaily good nor especially terms earnings, and free cash flows. Abercrombe is listed on the AMEX the NASDAQ market. on the while B&C will be traded in Company Data Shares outstanding Price per share Earnings per share Free cash florv Book value per Total assets million $3s.00 $2.20 $ 1.63 $16.00 $115 million $35 million Gunter 10 million $47.00 si- l -1 $2.54 $20.00 $250 rnillion $50 million B&C 500,000 A $2.00 $18.00 $11 million $2 million Total Underwriting and