Question

please make sure you got the right awenser i only got one chance to try

Pricing Stock Issues in an IPO Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang's current value of equity is $61 million. Zang currently has 5 million shares outstanding and will issue 1.9 million new shares. ESM charges a 5% spread What is the correctly valued offer price? Do not round intermediate calculations. Round your answer to the nearest cent. 12.2 How much cash will Zang raise net of the spread? Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Do not round intermediate calculations. Round your answer to three decimal places. million 22.021 Hide Feedback Incorrect Check My Work (1 remaining)

Answer 1

(a) Number of Shares Outstanding = 5 million, Market Value of Equity = $ 61 million, Price per Share = 61/5 = $ 12.2

Spread Charged = 5 % over and above the current price per share = 0.05 x 12.2 = $ 0.61

Therefore, Correct Offer Price = 12.2 + 0.61 = $ 12.81

(b) Number of New Shares Issued = 1.9 million, Offer Price = $ 12.81, Gross Proceeds = 12.81 x 1.9 = $ 24.339 million

Net Proceeds = Gross Proceeds - Underwriting Spread = 24.339 - 5 % of Gross Spread = 24.339 - 0.05 x 24.339 = $ 23.12205 million ~ $ 23.122 million