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3241004551 [841]
4 years ago
5

In its negotiations with its investment bankers, Patton Electronics has reached an agreement whereby the investment bankers rece

ive a smaller fee now (6% of gross proceeds versus their normal 10%) but also receive a 1-year option to purchase an additional 200,000 shares at $5.00 per share. Patton will go public by selling $5,000,000 of new common stock. The investment bankers expect to exercise the option and purchase the 200,000 shares in exactly one year, when the stock price is forecasted to be $6.50 per share. However, there is a chance 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 banker's required return on such arrangements is 15%, and ignore taxes.a. $1,235,925b. $1,300,973c. $1,369,446d. $1,441,522e. $1,517,391
Business
1 answer:
lara [203]4 years ago
3 0

Answer:

Explanation:

Present Value of Entire Underwriting Compensation=

Commission as a fixed % of Gross Proceeds + PV of Gain by exercising option to purchase shares.

Fixed Commission= 5000000*0.06

=300000

Gain by exercising option=200000*(12-5)

=1400000

PV of Gain =1400000/(1+0.15)

=1400000/1.15

=1217391.30

PV of Total Compensation=300000+1217391.30

=1517391.30

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4 years ago
alisa pursues the option to reallocate the bonus money which is currently only allocated to upper management. this will give emp
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<h3>Problem solving conflict style:</h3>

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7 0
1 year ago
A stock has a beta of 1.12 and an expected return of 10.8 percent. A risk-free asset currently earns 2.7 percent. a. What is the
love history [14]

Answer:

6.75%

Explanation:

Data provided in the question:

Beta of the stock = 1.12

Expected return = 10.8% = 0.108

Return of risk free asset = 2.7% = 0.027

Now,

Since it is equally invested in two assets

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both will have equal weight = \frac{1}{2} = 0.5

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4 years ago
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a lot of competition from other artists that also have similar skills as Natalie.

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The problem that Natalie is facing is that there is too much competition in the theater industry and jobs are scarce. The supply of talented artists is much higher than the demand, therefore, she is only able to earn a small amount of money.

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3 years ago
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