BUS3026W_2009+Tutorial+1+with+Memo

BUS3026W_2009+Tutorial+1+with+Memo - School of Management...

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School of Management Studies BUS3026W Finance II 2009 Tutorial Due: Week beginning 23 February ______________________________________________________________ Please show all your calculations. 2 Marks will be subtracted for every question not properly attempted. Question 1: Rainbow International needs capital, and has decided to list on the JSE. It appoints Infamous Bank as its underwriter. The following information is of relevance: 6,000,000 shares are sold to the public. The bank charges a fee of R 350,000 for its advisory services. The bank buys all the shares at an issue price of R 1,50 / share. Shares are offered to the public at R 1,75 / share. All shares are taken up and immediately upon listing the price jumps to R2,45. What are: a. The bank’s total net income from this transaction? [3 marks] b. Rainbow’s implicit costs of the IPO? [2 marks] c. Rainbow’s total costs of listing? [2 marks] d. Did the bank do a good job? Explain. [2 marks] Question 2: Silwood Inc. trades in a dealer market. The last trade was at R 3.42, and the current bid and offer prices are: Bid (the highest buyer): R 3.20 / share Offer (the lowest seller): R 3.45 / share a. An investor tells his broker to buy at market. At what price will this trade be executed? [1 mark] b. Another investor tells his broker to sell at market. At what price will this trade be executed? [1 mark]
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c. A third investor has given her broker a limit order to sell at R 3.40. What will happen? Explain. [2 marks] d. The last investor has submitted a limit order to buy at R 3.40. What will happen? Explain.
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BUS3026W_2009+Tutorial+1+with+Memo - School of Management...

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