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Finance 3820 Through IPO, an investment bank is helping a
Through IPO, an investment bank is helping a manufacturing firm to issue new equity to finance the firm?s $120 million investment project that has a present value of $165 million. The firm has a debt of $45.1 million in place. The firm?s average annual earnings has been $12.8 million, and EBITDA $17 million. P/E and V/EBITDA ratios of similar firms without debt are 14 and 11.3, respectively.
- a) If the issuing firm wants to increase its old shareholders? wealth by a minimum of 20% with the issuance and investment, what is the maximum issuance costs (IC) the investment bank can charge?
- b) Given the IC calculated above, what is the fraction of ownership does the firm need to sell to the new investors?
- c) If the target share price after the issuance is $22.60, how many shares need to be sold to the new investors?
This question was answered on: Feb 21, 2020
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