Question

FARO Technologies, whose products include portable 3D measurement equipment, recently had 18 million shares outstanding trading at $40 a share. Suppose the company announces its intention to raise $210 million by selling new shares.

b. How large a loss in dollar terms will existing FARO shareholders experience on the announcement date, based on studies that show losses are 30% of the size of the new issue? (Enter your answer in millions.)

c. What percentage of the value of FARO’s existing equity prior to the announcement is this expected gain or loss? (Round your answer to 1 decimal place.)

d. At what price should FARO expect its existing shares to sell immediately after the announcement? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Ans.

b)

Expected Loss: 30% of Issue Size

Expected Loss: 210*30% = $63 millions

c)

Expected Loss: $63 millions

Existing Shares: 18 millions

Price per share : $40

Existing Shares Value : 18 *40 = $ 720 millions

Expected Loss % = $ 63 /$ 720 = 8.75%

d)

Price Per Share: $ 40*(1 - 0.0875)

Price Per Share: $36.50