a)What is the intrinsic stock price per share before the IPO? b) Given the target net proceeds, what amount of gross proceeds are required?c. What is projected total value of LC immediately after the IPO? Based on the total amount paid by the shareholders purchasing new shares in the IPO, what percentage of the total post-IPO value do you think the new shareholders require to justify their stock purchases?d. How many new shares must be sold in the IPO to provide the percentage of ownership required by the new shareholders? How many total shares will be outstanding after the IPO?
a) Intrinsic value per share is true and real value of the company
Forecasted stock price is equal to Earnings Per Share after the nth year X Average PE Ratio
EPS after nth year is Current EPS X Rate of EPS Increase= E * ( 1+ r/100) ^ n
(r is rate and n is no of years)
Forecasted dividends is Total dividends in n years * Average dividend payout
add forecasted stock price and forecasted dividend, gives Future value of stock
Npv of future value of stock will be Intrinsic Value
will be equal to Future value / ( (1+r/100) ^ n)
B) Gross Proceeds of IPO would be
Net Proceeds plus underwriting discounts and commission plus other offering exps of the IPO
D) Suppose there are N shares. before IPO.M is new shares issued. ownership in the company gets reduced to the factor N / (N + M).. so this formula determines the new shares issued that is M. Total no. of shares outstanding would by N + M after the IPO
example there are 100 shares before IPO. 50 new shares are issued. ownership falls to 100 / 150 that is 66 percent post IPO.