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You have an arrangement with your broker to request 1050 shares of all available IPOs.
You have an arrangement with your broker to request 1050 shares of all available IPOs. Suppose that 9% of the time, the IPO is "very successful" and appreciates by 112% on the first day, 81% of the time it is "successful" and appreciates by 15%, and 10 % of the time it "fails" and falls by 17%.
a. By what amount does the average IPO appreciate the first day; that is, what is the average IPO underpricing?
b. Suppose you expect to receive 60 shares when the IPO is very successful, 250 shares when it is successful, and 1 comma 050 shares when it fails. Assume the average IPO price is $ 19. What is your expected one-day return on your IPO investments?
Your firm is considering leasing a $ 50000 copier. The copier has an estimated economic life of eight years. Suppose the appropriate discount rate is 8.8% APR with monthly compounding.
Classify each lease below as a capital lease or operating lease, and explain why:
a. A four-year fair market value lease with payments of $ 1150 per month.
b. A six-year fair market value lease with payments of $ 790 per month.
c. A five-year fair market value lease with payments of $ 920 per month.
d. A five-year fair market value lease with payments of $ 995 per month and an option to cancel after three years with a $ 9100 cancellation penalty.
