Eskimo Pie - Assume the following: (i) Eskimo pays out $11...

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Finance 311H – Financial Management – Professor Hadlock Discussion Questions for Case #1 Our first case considers the decision by Reynold’s to divest itself of its Eskimo Pie division. The case presents a nice “real world” situation where financial managers need to think about the value of a firm. I plan on discussing the value of Eskimo Pie in class under the scenario that they sell their stock to the public in an initial public offering (IPO). In particular, we will address the following issues: Question #1 You are the investment bank helping Eskimo management prepare an Initial Public Offering (IPO).
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Unformatted text preview: Assume the following: (i) Eskimo pays out $11 million in the form of a special dividend immediately before the offering using internal cash on hand. (iii) All of the shares of Eskimo are sold to the public. The proceeds of the IPO are distributed to the current (pre-IPO) owners of Eskimo. Estimate the market value of equity of Eskimo after the IPO. Using this estimate, what do you recommend as the asking price for the shares in the IPO? Question #2: If you were Reynolds management, would you sell Eskimo to Nestle or accept the proposed IPO plan. What criteria would you use in your decision?...
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