The Woods Co. and the Mickelson Co. have both announced IPOs at $46 per share. One of these is undervalued by $12, and the other is overvalued by $5, but you have no way of knowing which is which. You plan to buy 1,100 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 1,100 shares in Woods and 1,100 shares in Mickelson, what would your profit be? (Do not round intermediate calculations.)
What profit do you actually expect? (Do not round intermediate calculations.) Expected profit
The Woods Co. and the Mickelson Co. have both announced IPOs at $46 per share. One of these is undervalued by $12, and the other is overvalued by $5, but you have no way of knowing which is which. You plan to buy 1,100 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 1,100 shares in Woods and 1,100 shares in Mickelson, what would your profit be? (Do not round intermediate calculations.)
What profit do you actually expect? (Do not round intermediate calculations.) Expected profit
Related questions
| The Woods Co. and the Garcia Co. have both announced IPOs at $43 per share. One of these is undervalued by $10, and the other is overvalued by $4, but you have no way of knowing which is which. You plan on buying 700 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. |
| If you could get 700 shares in Woods and 700 shares in Garcia, what would your profit be? (Do not round intermediate calculations.) |
| Profit | $ |
| What profit do you actually expect? (Do not round intermediate calculations.) |
| Expected profit | $ |
The Woods Co. and the Garcia Co. have both announced IPOs at $43 per share. One of these is undervalued by $10, and the other is overvalued by $4, but you have no way of knowing which is which. You plan on buying 700 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 700 shares in Woods and 700 shares in Garcia, what would your profit be? (Do not round intermediate calculations.) Profit $ What profit do you actually expect? (Do not round intermediate calculations.) Expected profit $
Newkirk, Inc., is an unlevered firm with expected annual earnings before taxes of $22 million in perpetuity. The current required return on the firmâs equity is 20 percent, and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.4 million shares of common stock outstanding and is subject to a corporate tax rate of 35 percent. The firm is planning a recapitalization under which it will issue $31 million of perpetual 10 percent debt and use the proceeds to buy back shares.
| a-1. | Calculate the value of the company before the recapitalization plan is announced. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Current value | $ |
| a-2. | What is the price per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Price per share | $ |
| b-1. | Use the APV method to calculate the company value after the recapitalization plan is announced. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Value after recapitalization | $ |
| b-2. | What is the price per share after the recapitalization is announced? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Price per share | $ |
| c-1. | How many shares will be repurchased? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Shares repurchased | $ |
| c-2. | What is the price per share after the recapitalization and repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Price per share | $ |
| d. | Use the flow to equity method to calculate the value of the companyâs equity after the recapitalization. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Value of the equity | $ |
