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Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering

Financial Management – Assignment

Please refer to ebook access for accurate results: *(The correct answers are in the back of the textbook)

Chapter 18: Public and Private Financing:  Initial Public Offering, Seasoned Offerings and Investment Banks  

Chapter 20: Hybrid Financing:  Preferred Stock, Warrants and Convertibles

Chapter 22: Mergers and Corporate Control

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18-1       Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss did Security Brokers incur if the issue were sold to the public at the following average price?

a. $5 per share

b. $6 per share

c. $4 per share

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18-3       Benjamin Garcia’s start-up business is succeeding, but he needs $200,000 in additional funding to fund continued growth. Benjamin and an angel investor agree the business is worth $800,000 and the angel has agreed to invest the $200,000 that is needed. Benjamin presently owns all 40,000 shares in his business. What is a fair price per share and how many additional shares must Benjamin sell to the angel? Because the stock will be sold directly to an investor, there is no spread; the other flotation costs are insignificant.

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20-2       Breuer Investment’s convertible bonds have a $1,000 par value and a conversion price of $50 a share. What is the convertible issue’s conversion ratio?

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22-1       Elliott’s Cross Country Transportation Services has a capital structure with 25% debt at a 9% interest rate. Its beta is 1.6, the risk-free rate is 4%, and the market risk premium is 7%. Elliott’s combined federal-plus-state tax rate is 25%.

a. What is Elliott’s cost of equity?

b. What is its weighted average cost of capital?

c. What is its unlevered cost of equity?


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