Through IPO, an investment bank is helping a manufacturing firm to issue new equity to finance the
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Question:
Through IPO, an investment bank is helping a manufacturing firm to issue new equity to finance the firm’s $120 million investment project that has a present value of $165 million. The firm has a debt of $45.1 million in place. The firm’s average annual earnings has been $12.8 million, and EBITDA $17 million. P/E and V/EBITDA ratios of similar firms without debt are 14 and 11.3, respectively.
- a) If the issuing firm wants to increase its old shareholders’ wealth by a minimum of 20% with the issuance and investment, what is the maximum issuance costs (IC) the investment bank can charge?
- b) Given the IC calculated above, what is the fraction of ownership does the firm need to sell to the new investors?
- c) If the target share price after the issuance is $22.60, how many shares need to be sold to the new investors?
Related Book For
Canadian Organizational Behaviour
ISBN: 978-0070401877
8th Canadian Edition
Authors: Steven Lattimore McShane, Sandra Steen
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