Question $6$

Rex Ltd $($REX$)$ completed its initial public offer $($IPO$)$ and listed on the Australian Securities

Exchange $($ASX$)$ on the $9^{th}$ of January $2020.$ Rex Ltd issued $15,000,000$ new shares in the IPO.

The share issue was underwritten in a firm commitment agreement by the underwriter Tyro

Ltd$.$ The underwriting fee was $8\%.$ The IPO offer price was set at $$25$ per share. In addition, the

company needed to pay ASIC registration fees and legal fees, which were $$500,000$ in total. On

the IPO day, the share price increased to $$30$ by the end of the first day of trading. The company

had $100,000,000$ shares on issue before the offer $($note that no pre$-$IPO shares were sold via the

IPO$).$ Total income and the total number of shares for Rex Ltd and for two competitors, who

both listed on the local stock exchange in $2018,$ are provided below.

i$.$ Using relative valuation, what is you estimate of the value of Rex Ltd$?$

ii$.$ Was the offer underpriced or overpriced?

iii. By how much is the offer mispriced $($either under$-$ or over$-$priced$)$ relative to the offer

price by the end of the first trading day?

iv$.$ What was the net amount raised by the IPO?

v$.$ Briefly describe the process of an underwritten initial public offer $($IPO$).$

vi$.$ Overall, would you have invested in this IPO? $($Note: outline the reasoning for your

decision$).$

vii. Three years after the IPO, Rex Ltd has $150$ million shares of stock outstanding at a price

of $$45$ per share. The company would like to raise more funding through a seasoned

equity offering $($SEO$)$ and has announced a rights issue. Every existing shareholder will

be sent one right per share of stock that he or she owns. The SEO plan requires $5$ rights to

purchase one new share at a price of $$40$ per share. What would be the total amount of

money to be raised through the rights offering? What is the value of one right? What is the

value of one right per existing share?