Maple, Inc. would like to sell an additional 6,500 shares of stock using the Dutch auction...

Maple, Inc. would like to sell an additional 6,500 shares of stock using the Dutch auction method. The bids received are as follows: Bidder Quantity Price A 1000 $15 B 1500 $25 C 2500 $20 D 1500 $12 E 2000 $18 Bidder B will receive ____________ shares at a price of _____________. Select one: a. 1000; $15 b. 1000; $12 c. 929; $15 d. 1393; $15 e. 1857; $12

Expert Solution

Answer is d.1393; $15

In the Dutch method company decides the number of shares to be issued and bidders decide the price. In this method price is determined by the last price covering the full offer quantity by preparing list with the highest bid at the top.

Bidders:

Investor A places a bid for 1000 shares at $15
Investor B places a bid for 1500 shares at $25
Investor C places a bid for 2500 shares at $20
Investor D places a bid for 1500 shares at $12
Investor E places a bid for 2000 shares at $18

Placement:

Investor B: 1500 shares at $25 (6500-1500 = 5000 shares remaining)
Investor C: 2500 shares at $20 (5000-2500 = 2500 shares remaining)
Investor E: 2000 shares at $18 (2500-2000 = 500 shares remaining)
Investor A: 1000 shares at $15 (500-1000 = -500 shares remaining)

In this IPO should be priced at $15 as the last bid filled out the required number of shares that Maple, Inc. would like to sell. But, Investor A placed 1000 shares but only 500 shares were remaining. Therefore, we must allocate the share in such a proportion that every investor gets the specific percentage of shares demanded. To calculate the percentage of allocation we have 6500 shares to be issued and demanded are 7000(i.e.1500+2500+2000+100) shares. Thus, percentage of allocation are as follows:

(6500/7000)*100 = 92.86%

Allocation of shares are as follows:

Investor B (1500*92.86%) 1393 shares at $15

Investor C (2500*92.86%) 2321 shares at$15

Investor E (2000*92.86%)1857 shares at $15

Investor A (1000*92.86%) 929 shares at $15

(Note: Investor D would be out as the number of shares is already filled.)

Thus, Investor B will receive 1393 shares at a price of $15.

jeff jeffy answered 4 months ago

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