Question

A Brazilian company called Netshoes completed its IPO on April 12, 2017, and listed on the NYSE. Later Netshoes sold 8,250,000 shares of stock to priary market investors at an IPO offer price of $17.58 with an underwriting discount of 6.5%.Secondary market investors however were paying only $16.43 per 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

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

Answer 1

A B F G H I J K L M N Number of shares IPO price Underwriter discount Per share value paid by secondary market investors Number of outstanding shares 8,250,000 17.58 6.50% 16.43 31,025,936 9 b) 10 C) 11 d) 12 e) 13 f) Total proceeds for Netshoes IPO 145,035,000.00 =No. of shares* IPO price =8250000*17.58 Amount of underwriting fee 9,427,275.00 total proceeds from IPO * underwriter discount = 145035000*6.5% Net proceeds of Netshoes IPO 135,607,725.00 Total proceeds - Amount of underwriting fee=145035000-9427275 Market cap for Netshoes outstanding stock 509756128.5 =Per share value paid by secondary market investors*Number of outstanding shares = 16.43*31025936 IPO underpricing for Netshoes IPO -6.54% =Per share value paid by secondary market investors/IPO price -1 =16.43/17.58-1 Since the underpricing for Netshoes is negative, there was overpricing. The share price fell for the secondary market investors as the issue price, after accounting for underwriter dicount, was too high, and thus lower demand. So, the price fell to meet the expectation