LC Delivery has decided to sell 1,800 shares of stock through a Dutch auction. The bids received are as follows: 600 shares at $
37 a share, 800 shares at $36, 900 shares at $35, 200 shares at $34, and 100 shares at $32 a share. How much will the company receive in total from selling the 1,800 shares? Ignore all transaction and flotation costs.
1 answer:
Answer:
$63,000
Explanation:
At a Price of $35, LC Delivery have sold their 1,800 shares. So, D and E are out.
But at a Price of $35 there is a demand of 2,300 shares. So, by using Dutch auction method LC Delivery can allocate their 1,800 shares among the first 3 bidders as follows:
= 1800 / 2300
= 0.7826
or
78.26%
So, in this case all the bidders A, B and C gets 78.26% shares for what they bid for as follows:
78.26% of 600 shares at $35 per share = $16,450
78.26% of 800 shares at $35 per share = $21,910
78.26% of 900 shares at $35 per share = $24,640
So, LC Delivery will receive in total $63,000 by selling 1,800 shares.
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If the company requires a return of 10 percent for such an investment, calculate the present value of the project.
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Since we consider only incremental cash flows for a project, we consider $21,600 for year one and calculate a 4% increase for each of the additional years.
We then calculate the Present Value Interest Factor (PVIF) at 10% for four years using the formula :
PVIF = 1 / [(1+r)^n]
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Finally, we find the total of the discounted cash flows for the four years to find the Present Value of the project.
