1 Firm F has 100,000 shares outstanding and decides to go public. F plans to raise $5,000,000 in the operation. You currently own 30,000 shares in F....

1 Firm F has 100,000 shares outstanding and decides to go public. F plans to raise $5,000,000 in the operation. You currently own 30,000 shares in F. You want to sell your stake but you are aware of the underpricing problem in IPOs, so you decide to sell 10,000 stocks in the IPO and 20,000 stocks one month later. Other current shareholders will not sell stocks in the IPO. The underwriter recommends an issue price of $40.

(a) How many shares are offered in the IPO if the issue price is $40?

(b) Suppose that F goes public at $40. The closing price on the day following the IPO is $45, and the stock price remains at that level in the following month. What is your loss on the stocks sold in the IPO? After the IPO?

2 Firm F needs to raise $3,000,000 and decides to proceed with a SEO using a rights offering. F currently has 450,000 shares outstanding trading at $23. The issue price is $20. What is the value of one right?

3 F has just initiated a rights offering. Under the terms of the right offer, 3 rights are needed to buy one share at the issue price of $20. The ex-right date is on January 31st, 2011. On january 15th, 2011, F stock trades at $30. What is the value of one right?