A company issues a $200 million IPO. The offer price is $5 per share. The underwriter’s spread is 8%. The underwriter has agreed to a stand-by arrangement. For issuing the IPO, the company will pay some admin costs. The admin costs include a legal fee of $50,000, an accountant fee of $30,000 and other admin costs amounting to $170,000. The company’s share price increases by 10% at the end of the first day of trading. However, the offer has not been as successful as expected, and only 95% of the shares have been sold.

1. Determine the company’s total cost of issuing the securities.
2. Determine proceeds available to the underwriter and to the issuer.           
3. How will the proceeds available to underwriter change for a best-effort arrangement?

If the arrangement was best-effort instead of stand-by, who would have borne more risk? The underwriter or the issuer? Why?

An industry consists of two firms. Firm 1 has a total cost function given by
??1(?1)=?₁+?₁² ,
while firm 2 has a total cost function given by
??2(?2)=3?₂+12?₂²
for ?>0.
(a) Let ? denote the (exogenous) price at which each firm can sell its output. Write down each firm’s profit-maximization problem and the associated first-order conditions (FOCs).
(b) Derive the firms’ supply functions ?₁∗(?) and ?₂∗(?) and verify that these functions are linearly increasing in ?.
(c) Derive the industry supply curve ?(?). [Hint: Draw a picture and remember the notion of horizontal summation.

(d) Again assuming that the firms act as price takers, find the industry equilibrium when the industry demand curve is given by ??(?)=9/2−1/2? .

Ivanhoe Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,478,400 of 11% term corporate bonds on March 1, 2017, due on March 1, 2032, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2017. At the time of issuance, the market interest rate for similar financial instruments is 12%.

1) As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) What is the selling price of the bonds?

Jones Enterprises is looking at a project with the following forecasted sales: first year sales quantity 30,000 with an annual growth rate of 3.2% over the next ten years. The sales price per unit is $42.50 and will grow at 2.25% per year. The production costs are expected to be 50% of the current year’s sales price. The manufacturing equipment to aid this project will have a total cost of $3,000,000. It will be depreciated using MACRS and has a seven-year MACRS life classification. Fixed cost are $400,000 per year. Jones has a tax rate of 30%. Prepare an Excel worksheet for the 10 year projects Operating Cash Flows. What is the NPV and IRR of this project if the equipment can be sold for $140,000 at the end of the ten-year project and the cost of capital is 8.5% Should the project be accepted or rejected?

33. Jones Enterprises is looking at a project with the following forecasted sales: first year sales quantity 30,000 with an annual growth rate of 3.2% over the next ten years.

The sales price per unit is $42.50 and will grow at 2.25% per year.

The production costs are expected to be 50% of the current year’s sales price.

The manufacturing equipment to aid this project will have a total cost of $3,000,000.

It will be depreciated using MACRS and has a seven-year MACRS life classification.

Fixed cost are $400,000 per year.

Jones has a tax rate of 30%.

1. Prepare an Excel worksheet for the 10 year projects Operating Cash Flows.
2. What is the NPV and IRR of this project if the equipment can be sold for $140,000 at the end of the ten-year project and the cost of capital is 8.5%
3. Should the project be accepted or rejected?

On January 2, 201X, Tools, Inc. entered into a 6 year, non cancelable lease for a fleet trucks. The economic life of the trucks are 6 years, and title transfers at the end of the leasing period, with bargain purchase price of $50,000. The lease calls annual payments of $100,000, beginning with the signing of the lease, and at the beginning of the next five years. The bargain purchase price will be paid at the end of the 6th year. The borowing rate for Tools Inc is 6%. Required: 1) Calculate the NPV of the lease 2) Prepare "Schedule of Lese Payments" and show the totals of the lease payments, the interest expense and the principal payments 3) Prepare the first two years of journal entries related to the lease acquisition, payments, and amortization (straight-line) 4) Prepare the final journal entry at the end of 6th year for the purchase of the assets

The Frush Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,300 every six months over the subsequent eight years, and finally pays $2,600 every six months over the last six years. Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 12 percent compounded semiannually.

What is the current price of Bond M and Bond N? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Current price

Bond M $

Bond N $

Company ABC estimated revenue is 10 million in 2019 and 2% growth per year. Profit margin is stable annually and equals to 20%. Non-cash P&L items estimated at 12% of total sales. Company will purchase equipment at 2021 for 3 million. Interest expense is 800.000 annually and tax rate is 20%. Calculate FCFF for first 3 years. Explain the method you would use to calculate PV of future cash flows after year 3.

Using results, calculate value of the company if cost of capital is 5% and PV of future cash flows after year 3 is 14 million. Calculate the share price if there are 1 million outstanding shares. Would you invest in the company if market share price is 17$? Why?