1. Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows:
Price to public $5 per share
Number of Shares 3 million
Proceeds to Beedles $14,000,000
The out of pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?
$5 per share
$6 per share
$4 per share
2. 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.
3. Breuer Investment's convertible bonds had a $1000 par value and a conversion price of $50 a share. What is the convertible issues conversion ratio?
4. Vandell's free cash flow is $2 million per year and is expected to grow at a constant rate of 5% a year; it's beta is 1.4. What is the value of Vandell's operations if Vandell has $10.82 million in debt, what is the current value of Vandell's stock?