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Chapter 15 Solutions - shares Sale of the shares after the...

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Problem 15-1 Assumptions Pre-money valuation $80,000,000 Gross proceeds of IPO $12,000,000 Priced at 85% of aftermarket value 85.00% Fee $900,000 Direct issue costs $400,000 a. Pre-money valuation per share Shares outstanding 2,000,000 Pre-money value per share $40.00 b. Expected aftermarket value per share Total issue cost Underpricing $2,117,647 Fee $900,000 Direct issue costs $400,000 Total issue cost $3,417,647 Issue cost per existing share $1.71 Aftermarket price per share $38.29 c. New shares required Issue price $32.55 New shares 368,692 d. Issue cost percent of proceeds Issue cost/Gross proceeds 28.48% e. Issue cost percent of aftermarket value Issue cost/Aftermarket value 3.86%
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Question 15-8 Question 15 - 8 In an IPO, the entrepreneur normally cannot sell shares immediately, and is subject to market fluctuations during the period over which the entrepreneur cannot liquidate the
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Unformatted text preview: shares. Sale of the shares after the IPO result s in a taxable transaction for the entrepreneur and normally results in a capital gains tax liability. In a private sale, the entrepreneur can negotiate with the acquirer and may acquire cash, shares of the acquirer, or a combination. In addition, the en trepreneur can negotiate how the risk of subsequent performance of the venture will be shares with the acquirer. For example, if the entrepreneur is optimistic about sales or profitability, the entrepreneur can negotiate a contingent payment that is tied to subsequent performance. In some cases the exchange of shares of the venture for shares of the acquirer may be treated as not generating any immediate tax liability for the entrepreneur....
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Chapter 15 Solutions - shares Sale of the shares after the...

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