Question

P2-4 Initial public offering A Brazilian company called Netshoes completed its IPO on April 12, 2017, and listed on the NYSE. Netshoes sold 8,250,000 shares of stock to primary market investors at an IPO offer price of $18, with an underwriting dis- count of 6.5%. Secondary market share for Netshoes' 31,025,936 shares of stock outstanding a. Calculate the total proceeds for Netshoes' IPO. b. Calculate the dollar amount of the underwriting fee for Netshoes' IPo. c. Calculate the net proceeds for Netshoes' IPO. d. Calculate market capitalization for Netshoes' outstanding stock. e. Calculate IPO underpricing for Netshoes' IPO. f. Explain the IPO underpricing for Netshoes. investors, however, were paying only $16.10 per

Answer 1

a. Calculate the total proceeds for Netshoes' IPO.

Total proceeds for Netshoes' IPO = Number of shares sold in IPO * IPO price

=8,250,000 * $18

=$148,500,000

b. Calculate the dollar amount of the underwriting fee for Netshhoes' IPO.

The dollar amount of the underwriting fee for Netshhoes' IPO

= Total proceeds for Netshoes' IPO * Underwriting discount rate

= $148,500,000 *6.5%

= $9,652,500

c. Calculate the net proceeds for Netshoes' IPO.

The net proceeds for Netshoes' IPO = = Total proceeds for Netshoes' IPO - Underwriting fees

= $148,500,000 - $9,652,500

=$138,847,500

d. Calculate market capitalization for Netshoes' outstanding stock.

Market capitalization for Netshoes' outstanding stock

= Secondary market stock price * Total number of shares outstanding

= $16.10 * 31,025,936

= $499,517,569.60

e. Calculate IPO underpricing for Netshoes' IPO.

IPO underpricing for Netshoes' IPO = (Market price – IPO Price) / IPO Price

= ($16.10 - $18) / $18

=- 10.56%

But negative sign indicates that IPO is not underpriced it’s over priced

f. Explain the IPO underpricing for Netshoes.

IPO is not underpriced for Netshoes as the IPO price is more than its market price.