Use the table for the question(s)below.
David founds a company and goes through the investment rounds shown below:
He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0.
-An IPO is offered at $14 per share for 6 million shares.The IPO underwriters had a spread of 7.5%.What proceeds did the firm receive from the IPO?

Question

Use the table for the question(s)below.
David founds a company and goes through the investment rounds shown below:
  He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0.
-An IPO is offered at $14 per share for 6 million shares.The IPO underwriters had a spread of 7.5%.What proceeds did the firm receive from the IPO?

Quizplus · Accepted Answer

The firm received $77.7 million from the IPO. The calculation is as follows: $14 per share for 6 million shares equals $84 million in total. The underwriters' spread of 7.5% on $84 million is $6.3 million ($84 million * 7.5% = $6.3 million). Therefore, the proceeds to the firm are $84 million - $6.3 million = $77.7 million.

Use the Table for the Question(s)below