Answer:
a. Market signaling studies suggest that the price of existing FARO shares will fall.
b. $60,000,000
c. 8.403%
d. $38.471
Explanation:
Given
New Shares: $200,000,000
Existing Shares: $17,000,000
Price per Share: 42
a.
Because the stock of the FARO Technologies is overvalued at the current price
b.
Expected Loss: 30% * New Shares Size
New Shares Size = $200,000,000 (given)
Expected Loss = 30% * $200,000,000
Expected Loss = $60,000,000
c.
Percentage of the value of FARO’s existing equity = Ratio of New Expected Share Value to Existing Share Value
Expected Share Value = $60,000,000
Existing Share Value = Price per Shares * Existing Shares
Existing Share Value = 42 * $17,000,000
Existing Share Value = $714,000,000
Percentage of FARO's Existing Equity = $60,000,000 ÷ $714,000,000
Percentage = 8.403%
d.
The price FARO should expect its existing shares to sell
= Price per Share (1 - Percentage of Existing Equity)
Price per Share = 42
Percentage Existing Equity = 8.403%
The price FARO should expect its existing shares to sell = 42(1-8.403%)
The price FARO should expect its existing shares to sell = 42(1-0.08403)
The price FARO should expect its existing shares to sell = 42 * 0.91597
The price FARO should expect its existing shares to sell = $38.47074
The price FARO should expect its existing shares to sell = $38.471 ----- Approximated
