This website uses cookies to ensure you have the best experience. Learn more

Afin 353 Essay

1326 words - 6 pages

Chapter 23
The Mechanics of Raising Equity Capital

Private companies can raise equity capital from angel investors, venture capitalists, institutional investors, or
corporate investors.


Advantages of raising money from a corporate investor are that the large corporate partner may provide
benefits such as capital, expertise, or access to distribution channels. The corporate partner may become an
important customer or supplier for the startup firm, and the willingness of an established company to invest
may be an important endorsement of the new company.
The disadvantages are that not all corporate investments are successful. The corporate partner may gain
access ...view middle of the document...

00/share = $28,000,000.


You will own 5,000,000 / 7,000,000 = 71.4% of the firm after the last funding round.


The two main advantages of going public are liquidity and access to capital. One of the major disadvantages
of an IPO is that once a company becomes a public company, it must satisfy all of the requirements of being
a public company such as SEC filings, and listing requirements of the securities exchanges.


Berk/DeMarzo • Corporate Finance
Underwriters face the most risk from a firm commitment IPO. With this method, they guarantee that they
will sell all of the stock at the offer price. If the entire issue does not sell at the IPO price, the remaining
shares must be sold at a lower price and the underwriter must take the loss.
With a best-efforts IPO, the underwriter does not guarantee that the stock will be sold, but instead tries to sell
the stock for the best possible price. In an auction IPO, the underwriters let the market determine the price
by auctioning off the company.


First, compute the cumulative total number of shares demanded at or above any given price:

Cumulative Demand

The winning price should be $13.40, because investors have placed orders for a total of 1.8 million shares at
a price of $13.40 or higher.


a. With a P/E ratio of 20.0x, and 2005 earnings of $7.5 million, the total value of the firm at the IPO
should be:

= 20.0x ⇒ P = $150 million
There are currently (500,000 + 1,000,000 + 2,000,000) = 3,500,000 shares outstanding (before the IPO).
At the IPO, the firm will issue an additional 6.5 million shares, so there will be 10 million shares
outstanding immediately after the IPO. With a total market value of $150 million, each share should be
worth $150 / 10 = $15 per share.

After the IPO, you will own 500,000 of the 10 million shares outstanding, or 5% of the firm.


Underpricing refers to the fact that, on average, underwriters pick the IPO issue price so that the average
first-day return is positive. If you followed a strategy of placing an order for a fixed number of shares on
every IPO, your order will be completely filled when the stock price goes down, but you will be rationed
when it goes up. In effect you only get substantial amounts of stock when you do not want it. The winners’
curse is substantial enough so that the strategy of investing in every IPO does not yield above market returns.


The initial return on Margoles Publishing stock is ($19.00 – $14.00) / ($14.00) = 35.7%.
Who gains from the price increase? Investors who were able to buy at the IPO price of...

Other assignments on Afin 353

The Vc Shakeout Essay

2033 words - 9 pages ECONOMY 26 Luring a big firm to town is not the secret to job growth DEFEND YOUR RESEARCH 30 Are morning people wired for success? VISION STATEMENT 32 The social web’s east-west divide COLUMN 38 Warren Bennis looks back on his surprising path to fame New Thinking, Research in Progress New Thinking, Research in Progress FIRST The VC Shakeout Venture capital hasn’t worked for a decade and must be radically

Hospitals Paper

6014 words - 25 pages I hope to provide in this paper a comprehensive understanding for what the term “hospital” has become. Hospitals are an extremely complex system that man has created and shaped and reshaped throughout history. My goal in writing and researching this paper will be to provide those who read it a clear understanding on how the hospital system got to where it is today, and to shed some light on the many organizations that affiliate with and

Course Syllabus

2610 words - 11 pages [pic] COURSE SYLLABUS Semester: Fall, Year: 2012  College Mission Statement Richard J. Daley College provides high-quality education which leads to academic success, career development, and personal enrichment that fulfill diverse community needs. Mathematics Department Mission Statement Our mission is to deliver excellent service and to provide learning opportunities by offering a wide range of mathematics courses, which will help our


1477 words - 6 pages Boeing Management Planning Heather Oetzel MGT 330 October 22, 2012 Joe Cheng Abstract Boeing is known as “the world’s leading aerospace company and the largest manufacturer of commercial jetliner and military aircraft combined ("The Boeing Company: About Us", 2012). Every company uses different types of management techniques including how the planning function of management is used. Planning allows organizations to develop how the

Assisted Suicide

1015 words - 5 pages Should physician-assisted suicide be legal? While I believe if one chooses to end his or own life through physician assistance for reasons that they chose, the choice should be up to the individual. Physician-assisted suicide should be at one's discretion. “Assisted Suicide, also called Voluntary Euthanasia, is currently a contentious issue in many countries. Because Euthanasia is legal in a few modern democracies: the Netherlands, Belgium

Tanglewood Case 1

797 words - 4 pages Tanglewood’s staffing strategy requires the organization to make key decisions about the acquisition, deployment, and retention of the organization’s workforce. In order to accomplish this, Tanglewood’s must make thirteen decisions regarding its staffing levels and its staffing quality. One of the first decisions that Tanglewood needs to choose is to acquire or develop talent. Tanglewood should try to develop their current talent because one


1391 words - 6 pages Есе по въпроса: Кои от всички „действащи” лица могат да се разглеждат като морално отговорни и в какво именно? по казуса Форд „Пинто” Корпоративните злодеяния са нанесли повече вреди на обществото от всички улични престъпления взети заедно. Според данни на ФБР сумата от уличните престъпления възлиза на $3.8 млрд. годишно, а загубите от корпоративните измами между $100 млрд. и $400 млрд. годишно

The Penis

1052 words - 5 pages The short story ”The Penis” is written by Hanif Kureishi. The short story is about a penis, which has been separated from its owner Doug, who we hear from later on. At first though we hear about a guy called Alfie who was “a cutter – a hairdresser – and had to get to work”. He is having breakfast with his wife, when she asks him what he did last night, and if he had a good time last night? Alfie can not remember what he did last night, he then

Managed Care Paper

543 words - 3 pages Managed Care and Case Management Care Marvin Lloyd BSHS/402-Case Management 27 August 2012 Virgil Miller Managed Care are techniques employed to help reduce the cost for providing health benefits and a system for improving organizations quality of care


439 words - 2 pages The life expectancy is lower; so people are not kept alive with drugs for decades in a virtual sleep state. There is less state education; so kids don't have it drilled into them that their only goal in life is to make money, at the cost of 'everything' else. The health care is less; so diseases, usually brought by Westerners, kill many more than they do in countries where drug companies can make a fortune from selling medicines that aren't

Chapter 6 International Business

7113 words - 29 pages CGGGG The Political Economy of International Trade Chapter Outline OPENING CASE: Why Are Global Food Prices Soaring? INTRODUCTION INSTRUMENTS OF TRADE POLICY Tariffs Subsides Country Focus: Subsidized Wheat Production in Japan Import Quotas and Voluntary Export Restraints Local Content Requirements Administrative Polices Antidumping Policies Management Focus: U.S. Magnesium

Similar Documents

Tpe Dechets Essay

1964 words - 8 pages d'un produit sur l'étiquette placée sur le rayonnage : un nombre écrit en tout petit qui vous permet pourtant de comparer. Eviter au maximum les produits jetables et les emballages Les industriels veulent faire plus pratique, plus sexy au détriment des déchets dont le volume et le poids ne cessent de croître : chaque français en produit plus de 353 kg par an (ADEME, 2006), contre 220 kg dans les années 60. Les lingettes qui se démocratisent pour

Conflit Inde Pakistan Essay

5309 words - 22 pages l’importance du Cachemire. La première découle bien évidemment de l’occupation du Cachemire par les deux armées en 1947. L’Inde porte plainte contre le Pakistan au Conseil des Nations Unies en 1949. L’ONU tranche : les deux armées doivent être retirées et un plébiscite tenu afin de savoir à quel état les cachemiris veulent être rattachés. Le cessez le feu prend officiellement effet le 1er janvier 1949. L’opportunisme exacerbé des deux nations pousse à

Mgt216 Essay

714 words - 3 pages The first ethical issue presented in the ethics game simulation was whether to warn consumers about the contaminated product and what information to provide consumers about the contaminant. The second ethical issue was whether to sell a product that does not meet U.S. safety requirements in a foreign market that has lower safety restrictions. G-BioSport was not required to meet prior approval from the Federal Drug Administration before they

Economy Effect Of Marijuana Essay

277 words - 2 pages Modern American History by Alan Renga 2nd Mid Term! You will be given 3 Short Essay questions and 20 Multiple Choice questions deriving from this list! 80 points total! The 1920s Warren Harding then Calvin Coolidge Tea Pot Dome 1st Red Scare Immigration Restriction, Sacco and Vanzetti Langston Hughes, Marcus Garvey, KKK Prosperity, advertising Prohibition, Al Capone Flappers, Clara Bow, Rudolph Valentino Babe Ruth, Jack Dempsey