Tuttle Buildings

Basic Buildings Inc. has decided to go public with a $5,000,000 in the buff equity issue. Its investment bankers agreed to take a littler fee now (6 percent of par apprise versus 10 percent) in exchange for a 1- division plectrum to purchase an extra 200,000 per centums of the compevery at $5.00 per share. The investment banking firm inhabits to exercise its option and purchase the 200,000 shares in exactly oneness years time when the stockpile price is expected to be $6.50 per share. However, if the stock price is in reality $12.00 per share one year from now, what is the present value of the sinless underwriting agreement to the investment banker? Assume that the investment bankers required bring to on such arrangements is 15 percent and ignore any tax considerations.

One year from now the gain to the banker from the shares is 12-5=$7 per share and descend is $7 × 200,000= $1,400,000.

The present value is $1,400,000/(1.15) = $1,217,391.

In addition the bankers fee now is:

5,000,000 × 6%= $300,000.

The total amount is $1,517,391

|13. Tuttle Buildings Inc. has decided to go public by exchange $6,000,000 of new common stock. Its |
|investment bankers agreed to take a smaller fee now (6% of gross proceeds versus their public 10%) in exchange for a 1 year option to |
|purchase an additional 250,000 shares at $7.00 per share.



The |
|Investment bankers expect to exercise the option and purchase the 250,000 shares in exactly one year, when the stock price is forecasted to|
|be $6.50 per share. However, there is a befall that the stock |
|price will actually be $12.00 per share one year from now. If the $12 price occurs, what would the |
|present value of the entire underwriting compensation be? Assume that the investment bankers...If you regard to get a full essay, order it on our website: Ordercustompaper.com



If you want to get a full essay, wisit our page: write my paper