XYZ has received a firm commitment from its underwriter to purchase 1.5 million shares of stock...

XYZ has received a firm commitment from its underwriter to purchase 1.5 million shares of stock that will be marketed to the general public at $60 per share. The underwriter's spread is $3.00 per share and the issuing firm will pay an additional $2million in legal and other fees. The issue was fully sold on the first day and the stock closed at $80.00 on that day. Calculate both the direct expense of issuance and the indirect (i.e., underpricing) expense. What percentage of the market value of the shares is represented by these costs?

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jeff jeffy answered 2 years ago

A firm desires to sell stock to the public. The underwriter charges $0.4 million in fees and offers to buy six million shares from the firm at a price of $30 per share.

A firm desires to sell stock to the public. The underwriter charges $0.4 million in fees and offers to buy six million shares from the firm at a price of $30 per share. In addition, registration and audit fees total $120,000, and marketing and miscellaneous fees add up to another $65,000. The underwriter expects to earn gross proceeds per share of $36. a) What is the issuing firm's out-of-pocket dollar transaction cost to issue the stock? (10 marks) b) Immediately...

WACC Information extracted from XYZ firm are as follow: Common Shares issued: 1 million shares Share...

WACC Information extracted from XYZ firm are as follow: Common Shares issued: 1 million shares Share Price: $5 per share Bonds issued: 10,000 bonds Face Value of Bond: $1,000 Price of Bond: $1,044.52 Coupon rate of bond: 5% Maturity of Bond: 5 years Information extracted from Factset are as follow: XYZ’s beta: 1.2 times of market beta 10-year Treasury Bond yield: 3% 5-year AA bond yield: 3.5% 5-year A bonds have a spread of 0.5% above AA bond yields Expected...

XYZ has 9 million shares of stock outstanding. The current share price is $50, and the...

XYZ has 9 million shares of stock outstanding. The current share price is $50, and the book value per share is $6. The firm also has two bond issues outstanding. The first bond issue has a face value of $70 million and an 8% annual coupon; it sells for 95% of par. The second bond has a face value of $60 million and a 7% annual coupon; it sells for 97% of par. The first bond matures in 10 years,...

McBean Company has outstanding 15 million shares of $3 par value common stock and 1.5 million...

McBean Company has outstanding 15 million shares of $3 par value common stock and 1.5 million shares of $5 par value preferred stock. The preferred stock has a 8% dividend rate. The company declares $9,000,000 in total dividends for the year. Preferred Dividends in arrears are $450,000. a. Compute the amount of dividends to be distributed to preferred shareholders. (Enter your answer in dollars and not in millions.) b. Compute the amount of dividends to be distributed to common shareholders....

XYZ Company has currently $2 million shares of common stock outstanding, and the selling price of...

XYZ Company has currently $2 million shares of common stock outstanding, and the selling price of each stock is $25. They want to extend $3 Million through bond issuance at 10% interest rate. Financial analyst estimated $2 Million EBIT. The marginal tax rate is 35%. a) What would be the earning per share?

c) A firm has the following capital structure: 100 million shares outstanding, trading at £1.5 per...

c) A firm has the following capital structure: 100 million shares outstanding, trading at £1.5 per share, and £100 million of debt. The beta of the firm’s stock is 1.5. The firm’s cost of equity is 10 percent, and the yield on riskless bonds is 2.5 percent. There is no tax. Assuming that the firm can borrow at the risk free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the following questions. iv)...

ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares...

ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares of 6 percent preferred stock (annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face value with a coupon rate of 8 percent semiannual bonds outstanding. The bonds were issued five years ago with maturity of 30 years when they were issued. The market price of common stock is $46 per share and has a beta of 0.85, the preferred stock currently sells for $90...

Summary: In 2020, XYZ Co. has an existing loan in the amount of $1.5 million with...

Summary: In 2020, XYZ Co. has an existing loan in the amount of $1.5 million with an annual interest rate of 9.5%. The company provides an internal company prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace XYZ’s existing loan agreement with a new one, starting 2021. Sadaf Remo Bank has offered to loan XYZ $1.5 million at a rate of 8.5% but would require XYZ to provide financial statements that have...

An investment banker agrees to underwrite an issue of 10 million shares of stock for XYZ...

An investment banker agrees to underwrite an issue of 10 million shares of stock for XYZ Corp. on a firm commitment basis. The investment banker pays $25.50 per share to XYZ Corp. for the 20 million shares of stock. It then sells those shares to the public for $26.35 per share. a) How much money does XYZ Corp. receive? b) What is the profit to the investment banker? c) if the investment bank can sell the shares for only $24.75...

Company ABC received a contract from company XYZ, worth $460 million to build a product. XYZ...

Company ABC received a contract from company XYZ, worth $460 million to build a product. XYZ will pay $50 million when the contract is signed, another $360 million at the end of the first year, and the $50 million balance at the end of second year. The expected cash outflows required to produce the product are estimated to be $150 million now, $95 million the first year, and $218 million the second year. The firm’s MARR is 27% for this...

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