A company goes public with an offering price of $18. There is a 7 percent underwriting spread. There is also a 15 percent overallotment option. The company is selling 20 million shares. The underwriter fills orders for 23.00 million shares but has not exercised the overallotment option. The stock drops to $22. How much would it cost the underwriter to cover the short position? Do not rounif the underwriter used all its profits from the short position to purchase shares, how many shares would it purchase (include the shares that must be purchased to cover the short position)? Do not round intermediate calculations. Round your answer to the nearest whole number.

A company goes public with an offering price of $18. There is a 7 percent underwriting spread. There is also a 15 percent overallotment option. The company is selling 20 million shares. The underwriter fills orders for 23.00 million shares but has not exercised the overallotment option. The stock drops to $22. How much would it cost the underwriter to cover the short position? Do not rounif the underwriter used all its profits from the short position to purchase shares, how many shares would it purchase (include the shares that must be purchased to cover the short position)? Do not round intermediate calculations. Round your answer to the nearest whole number.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

A company goes public with an offering price of $18. There is a 7 percent underwriting spread. There is also a 15 percent overallotment option. The company is selling 25 million shares. The underwriter fills orders for 28. 75 million shares but has not exercised the overallotment option. The stock rises to $20. How much would it cost the underwriter to cover the short position? If the underwriter used all its profits from the short position to purchase shares, how many shares would it purchase (include the shares that must be purchased to cover the short position)?
A company wants to raise $400 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 5 percent underpricing and a 4 percent spread (Hint: the underpricing is 5 percent of the current stock price, and the spread is 4 percent of the issue price) a Assuming the company's stock price does not change from its current price of $65 per share, what would be the issue price to the public after underpricing? How many shares would the company need to sell? Note: Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places. Enter "Number of shares" answer in millions. 4 Issue price Number of shares million b. How much money will the investment banking syndicate earn on the sale? Note: Round intermediate calculations to 2 decimal places. Enter your answer in millions rounded to 2 decimal places. Investment bankers' revenue million i
Suppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account.a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Xtel pays no dividends.b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call?c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.
.Suppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account. a.If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Xtel pays no dividends. b.If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call? c.Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.13.
A firm goes public. The firm receives $36.50 for each of the 7.25 million shares sold. The initial offering price was $38.75 per share, and the stock rose to $42.65 per share is the first few minutes of trading. The firm paid $2,285,000 in direct legal and other costs and $988,000 in indirect cost. What was the total for underpricing of this offer?
You believe that Rose, Inc., the stock is going to fall and you’ve decided to sell 1,300 shares short. If the current share price is $58, construct the equity account balance sheet for this trade. Assume the initial margin is 60 percent. Assets Liabilities and account equity Proceeds from sale Short position Initial margin deposit Account equity Total Total
You have borrowed $45,000 on margin to buy shares in Tencent, which is now selling at $120 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 30%. Two days later, the stock price falls to $105 per share. a. What is the current margin and will you recieve a margin call? b. How low can the price of the shares fall before you recieve a margin call?
You sell short 200 shares of Doggie Treats Inc. that are currently selling at $25 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margin, at what stock price will you get a margin call? (You earn no interest on the funds in your margin account, and the firm does not pay any dividends.)
You’ve borrowed $22,000 on margin to buy shares in Ixnay, which is now selling at $32 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 30%. Two days later, the stock price falls to $22 per share. a. Will you receive a margin call? multiple choice No Yes b. How low can the price of Ixnay shares fall before you receive a margin call? (Round your answer to 2 decimal places.) Margin call will be made as price _______ or lower.
Maxwell Corp. is coming to the market with a new offering of 300,000 shares, at $25 to the public. Maxwell will receive $22 per share. The firm has 1 million shares outstanding and earnings of $6 million. What is the amount of dilution in earnings per share? Multiple Choice $2.00. $1.38. $1.77. No dilution occurs since new money is received by Maxwell.
You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below what price? (Assume the stock pays no dividends and ignore interest on the margin loan.)
Suppose that you sell short 1000 shares of Xtel, currently selling for $50 per share, and give your broker $40,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $55; (ii) $50; (iii) $46? Assume that Xtel pays no dividends. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call? (Round your answer to 2 decimal places.) c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS