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Raising Capital Finance Assignment Help
Question 1
The Newton Company has 50,000 shares of stock that each sell for $40. Suppose the company issues 9,000 shares of new stock at the following prices: $40, $20, and $10. What is the effect of each of the alternative offering prices on the existing price per share?
Question 2
The St. Anger Corporation needs to raise $55 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. Raising Capital Finance Assignment Help
- a) If the offer price is $32 per share and the company’s underwriters charge a spread of 7 percent, how many shares need to be sold?
- b)In the previous problem, if the SEC filing fee and associated administrative expenses of the offering are $1,900,000, how many shares need to be sold?
Question 3
You are an inventor with a great business idea but no money. You have approached a venture capitalist (VC), asking for a $40 million investment in your company. You explain that you expect the initial $40 million investment to earn a 50% annual rate of return forever. You plan to reinvest all of the project’s earnings in Years 1 and 2, and you expect that these additional investments will also earn a 50% annual rate of return forever. After Year 2, you plan to invest no more in the company, except to maintain assets, so your company’s annual earnings should remain constant forever from Year 3 onward.
Raising Capital Finance Assignment Help
- a) If the VC agrees to give you the $40 million in exchange for a 40% ownership share in the company, what is the company’s “after-the-money” valuation?
- b) If the appropriate discount rate for your business is 20%, what is the VC’s NPV from this investment?
- c) If the capital market were perfectly efficient, what ownership share in the company should the VC have received in exchange for the $40 million investment? Why might it be necessary for you to strike a less advantageous bargain (for you) with the VC than this?
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