Question

Two years after Venice Partners invested $1,400,000 into Invisibilia, Inc. Invisibilia, Inc. had a successful initial public offering (IPO) on July 1, 2014. In the IPO, Invisibilia, Inc. sold 5,500,000 common shares for $220,000,000. Using some of the IPO proceeds, Invisibilia, Inc. redeemed all of Mark Maker's and Venice Partners' investments of $400,000 and $1,400,000, respectively. In connection with the IPO, Invisibilia, Inc. granted stock options with a weighted-average $30 exercise price for 300,000 common shares to Mark Maker and 700,000 common shares to Antonio Merchant of Venice Partners. Also in connection with the IPO, Kayu Rockchalk was granted stock options with a weighted-average $55 exercise price for 350,000 common shares. As of December 31, 2014, Invisibilia, Inc.'s net income was $2,500,000 and its stock price increased 25% from its IPO price per share.

1. As of December 31, 2014, what was Invisibilia, Inc.'s basic earnings per share (you must use the beginning common stock balances (4,004 shares) and related retirements (4 shares) from the in-class round 2 preferred funding $1,400,000 example to compute weighted-average balance for 2014. Round result to 4 digits)?

2. As of December 31, 2014, how many stock options of Invisibilia, Inc. were "out-of- the-money"?

3. Using the treasury stock method, how many additional common shares of Invisibilia, Inc. would be issued at December 31, 2014?

4. As of December 31, 2014, what was Invisibilia, Inc.'s fully-diluted earnings per share (round to 4 digits)?

5. As of December 31, 2014 what was Invisibilia, Inc.'s equity market capitalization value (hint: don't use fully-diluted weighted-average common shares)?

Answer 1

1	Net Income	$                 2,500,000.00
						5600000
	Common Stocks outstanding as at Dec-14					140000
	Beginning Common Stock at beginning of the year	4004
	Add: IPO made on July 1,2014(5500000/2)	2750000
	Less: Shares retired(4/2)	2
	Weighted Average Common Stocks outstanding as at Dec-14	2754002
	Basic EPS	$                             0.9078
2		Mark Maker	Venice
	Option granted-a	300000	700000
	Exercise Price-b	$                               30.00	$                               30.00
	Value As on Dec-31(40*125%)-c	$                               50.00	$                               50.00
	Fair Value per stock-c(b-c)	$                               20.00	$                               20.00
	Fair value in $(d*e)	$                 6,000,000.00	$              14,000,000.00
	Less: Investment redeemed	$                    400,000.00	$                 1,400,000.00
	Excess benefit offered-f	$                 5,600,000.00	$              12,600,000.00
	Stock option out-of-the-money(f/50)	$                    112,000.00	$                    252,000.00
3
	Additional shares that can be issued using treasury stock method
		Shares	Exercise price	Amount	Strike Price	Additional Shares that can be purchased	Additional shares to be issued
	Mark Maker	300000	30	9000000	50	180000	120000
	Antonio Merchant of Venice Partners	700000	30	21000000	50	420000	280000
	4 Calculation of fully Diluted EPS No of Shares Weighted Average Common Stocks outstanding as at Dec-14 2754002 Add:Issued to Mark Maker 120000 Issued to Venice Partner 280000 Total 3154002
	Net Income	$                 2,500,000.00
	Diluted EPS(2500000/3254002)	$                             0.7683
	As Exercise price($55) is more than market price($50) Kayu Rockchalk will not exercise option