Question

Sous-Chef Inc. is an employment agency that specializes in the restaurant industry. The company intends to sell 800,000 shares in its IPO and the investment dealers working on the issue have been seeking expressions of interest in the shares from various investors (pension plans, mutual funds, and so on). As the dealers sit down with the company’s management to price the issue, the “book” looks like this:


a. What is the highest issue price that the shares can command if all the investors live up to their intentions as shown in the table?
b. Suppose the investment dealers want to set the price so that the issue is two-times oversubscribed. That is, all the shares will sell even if the investors only purchase half the number of shares indicated in the table. At what price should the shares be issued?
c. Assume the IPO was priced at $18.50 and will trade on the Toronto Stock Exchange. If the amount of under-pricing is the same as the historical average for Canadian stocks, what do you expect the price of the stock to be at the end of its first day of trading? What would its price be if the first-day returns is the same as what is typically seen in the UnitedStates?


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  • CreatedFebruary 25, 2015
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