Category: Business and Money > Finance
Asked by: baseball2-ga
List Price: $20.00
23 Apr 2005 14:49 PDT
Expires: 23 May 2005 14:49 PDT
Question ID: 513222
I need help with a finance question! The Presley Corporation is about to go public. It currently has affter tax earnings of 7,500, and 2,5000 shares are owned by the present stockholders. The new public issue will represent 600,000 new shares. The new shares will be placed to the public at $20. per share, with a 5 percent spread on the offering prices. There will also be $2000,000 in out of pocket costs to the corporation. What is the net proceeds for the Presley Corporation. Could use answer tonight!
Answered By: omnivorous-ga on 29 Apr 2005 16:54 PDT
Baseball2 -- Thanks for the clarification. Some of the data at the start of the question is irrelevant (earnings and shares oustanding). Commissions clearly reduce proceeds to the company; so too do the out-of-pocket expenses. Plus, it's important to know that the out-of-pocket costs are attached to the IPO - rather than being an expense that reduces earnings. The Initial Public Offering (IPO) will raise $20 x 600,000 shares = $12 million. Commission = 0.05 * $12 million = $600,000 Out-of-pocket = $200,000 NET TO COMPANY = $12 million - $600,000 - $200,000 = $11.2 million The expenses here are about 6.7% of the total, which is lower than the industry norm of 10%-12%, according to Carter, Morse & Mathias. The investment banking firm has a very good definition of the expenses of going public, noting "Out-of-pocket expenses include: underwriters discount, legal, accounting and printing, which average 10-12% of gross proceeds." Carter, Morse & Mathias "Initial Public Offerings," (Carter, undated) http://www.cartermorse.com/articles/publicofferings.html Best regards, Omnivorous-GA
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