Seat work
Problem 1
The managers of XYZ Corporation have decided to expand the company’s operations into a few new
markets. To fund this opportunity, XYZ has decided to launch a seasoned equity offering to raise new equity
capital. XYZ currently has 12 million shares outstanding, and yesterday’s closing market price was P40.00
per share. The company plans to sell 3 million newly issued shares in its seasoned offering. The investment
banking firm has agreed to underwrite the new stock issue for a 4 percent discount from the offering price,
which XYZ has agreed should be P0.50 per share lower than XYZ’s closing price the day before the offering
is sold.
1. If XYZ’s stock price closes at P39.00 the day before the offering, what will be the net proceeds for XYZ
from this offering? __________________
2. If XYZ’s stock price closes at P39.00 the day before the offering, calculate the return earned by XYZ’s
existing stockholders on their shares from the time before the seasoned offering was announced through
the time it was actually sold for P38.50 per share. _______________________
3. If XYZ’s stock price closes at P39.00 the day before the offering, calculate the total cost of the seasoned
equity offering to XYZ’s existing stockholders as a percentage of the offering proceeds
________________
4. If XYZ’s stock price closes at P46.75 the day before the offering, calculate the total cost of the seasoned
equity offering to XYZ’s existing stockholders as a percentage of the offering
proceeds._________________
Problem 2
Kystelle Inc. is planning an IPO. Under the terms of the IPO, Krystelle will issue 8 million shares at an
offer price of P25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated
to be P7 million. The stock is expected to trade at P30 at the end of the first trading day.
1. What is the total amount of funds raised by Krystelle Inc. through the IPO? ___________________
2. What is the initial return earned by investors on this Krystelle Inc. IPO? _________________
3. What are the total underwriting fees for this Krystelle Inc. IPO? _______________________
4. Refer to Krytelle Inc. IPO. What are the total costs caused by underpricing? ____________________
5. What are the total costs (underwriting and underpricing) of the Krystelle Inc. IPO?
_______________________
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