Question
In: Finance
Tweet Inc. is planning its initial public offerings (IPO). The firm’s current value of equity is...
Tweet Inc. is planning its initial public offerings (IPO). The firm’s current value of equity is estimated to be $750 million. The founder of Tweet Inc. and a few venture capital funds together hold all the 48 million existing shares, and they want to retain 75% of the firm after the IPO. The floatation costs, including underwriting fees charged by Silverman Sachs, the investment bank, will be 10% of the proceeds. How many shares will be sold and for how much per share?
Please show work using Financial Calculator not excel.
Solutions
Expert Solution
As the founder wants to hold 75% of the shares, so the rest 25% of total shares will be sold = 25% of 48 million = 12 million shares
As the current value of equity is estimated to be 750 million. So each share values to be = 750/48 = 15.625
But there is an flotation cost associated with issuing of IPO which is 10% of the proceeding. So the issue price of the shares will be marked up by 10% of their intrinsic value = 15.625*1.1 = $17.1875
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