Purchase Solution

# IPO Underpricing, Flotation Costs

Not what you're looking for?

1. IPO Underpricing. The James Co/and the Lars Co. have both announced IPOs at \$30 per share. One of these is undervalued by \$6, and the other is overvalued by \$3, but you have no way of knowing which is which. You plan on buying 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 1,000 shares in James and 1,000 shares in Lars, what would your profit be? What profit do you actually expect? What principle have you illustrated?

2. Calculating Flotation Costs. The Clapper Corporation needs to raise \$60 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is \$75 per share and the company's underwriters charge a 7 percent spread, how many shares need to be sold?

5. Calculating Flotation Costs. The Moser Corporation needs to raise \$35 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is \$42 per share and the company's underwriters charge a 6 percent spread, how many shares need to be sold?

##### Solution Summary

Answers questions on IPO Underpricing, Flotation Costs.

##### Free BrainMass Quizzes

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

##### Operations Management

This quiz tests a student's knowledge about Operations Management

##### Basics of corporate finance

These questions will test you on your knowledge of finance.

##### Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

##### MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.