公司理财第19章

AnswerstoEnd-of-ChapterProblemsB-AnswerstoEnd-of-ChapterProblemsB-PAGE185B-PAGEB-PAGE184AnswerstoEnd-of-ChapterProblemsChapter19:IssuingEquitySecuritiestothePublicCONCEPTQUESTIONS-CHAPTER19Describethebasicproceduresinanewissue.ObtainapprovaloftheBoardofDirectors.FileregistrationstatementwiththeSECDistributeprospectusDetermineofferpricePlacetombstoneadvertisements.Whatisaregistrationstatement?AdocumentfiledwiththeSECcontaininginformationrelevanttotheoffering.Describeafirmcommitmentunderwritingandabest-effortsunderwriting.Inafirmcommitmentunderwriting,theunderwriterbuystheentireissueandresellsit.Inabesteffortsunderwriting,theunderwriterisonlylegallyboundtouse"bestefforts"tosellthesecuritiesattheagreeduponofferingprice.Supposethatastockholdercallsyouupoutoftheblueandofferstosellsomesharesofanewissue.Doyouthinktheissuewilldobetterorworsethanaverage?Itwillprobablydoworsebecauseotherwiseitwouldhavebeenoversoldandtherewouldbenoneedforthebrokertotrytosellittoyou.Whataresomereasonsthatthepriceofstockdropsontheannouncementanewequityissue?Managersaredisinclinedtoissuestockwhenthesharepriceisbelowtheirestimateofintrinsicvalue.Equityofferingssignalthatmanagementconsidersthesharepricehigh.Equityofferingsaremorelikelywhenthefirmisover-levered.Describethecostsofanewissueofcommonstock.Spread:Thedifferencebetweentheofferingpriceandwhattheunderwriterpaystheissuingcompany.Otherdirectexpenses:Filingfees,legalfeesandtaxes.Indirectexpenses:Managementtimespentanalyzingtheissuance.Abnormalreturns:Thedropinthecurrentstockpriceby1%to2%inseasonednewissueofstock.Underpricing:Settingtheofferingpricebelowthecorrectvalueinannewissueofstock.Greenshoeoption:Theunderwriter'srighttobuyadditionalsharesatthepricetocoveroverallotments.WhatconclusionsemergefromananalysisofTable19.5?Therearesubstantialfinancialeconomiesofscale.Directcostsaresomewhatgreaterthanindirectones.Highercostsforbesteffortsoffers.Moreunderpricingforfirmcommitmentthanforbesteffortsoffers.Bothdirectandindirectcostsarehigherforinitialofferingsthanforones.Describethedetailsofarightsoffering.Inarightsoffering,eachshareholderisissuedanoptiontobuyaspecifiednumberofsharesfromthefirmataspecifiedpricewithinacertaintimeframe.Theserightsareoftentradedonsecuritiesexchangesoroverthecounter.Whatarethequestionsthatfinancialmanagementmustanswerinarightsofferings?Whatpriceshouldexistingshareholderspayforashareofnewstock?Howmanyrightswillberequiredtopurchaseoneshareofstock?Whateffectwilltherightsofferinghaveonthepriceoftheexistingstock?Howisthevalueofarightdetermined?Valueofoneright=Rights-onstockprice-ex-rightsstockprice=(Ex-rightsprice-Subscriptionprice)/(rights/share)=(Rights-onprice-Subscriptionprice)/(rights/share+1)Whataretheseveralkindsofdilution?DilutionofownershipDilutionofmarketvalueDilutionofbookvalueIsdilutionimportant?Truedilution,ofownershipormarketvalue,isveryimportantbecauseitisaneconomiclosstocurrentshareholders.Bookvaluedilution,ontheotherhand,isirrelevant.Whymightafirmpreferageneralcashofferingtoarightsoffering?Underwritersprovideinsuranceregardingtheamountraisedbytheregardlessoftruestockvalue.Proceedsareavailablesooner.UnderwriterswillprovidewiderdistributionofownershipUnderwritersprovideconsultingadvice.Describeshelfregistration.ItisregistrationallowedbyRule415oftheSECwherebyacorporationregistersstockthatwillbesoldwithintwoyearsofregistration.Whataretheargumentsagainstshelfregistration?Thecostsofnewissuesmightgoupbecauseunderwritersmaybeunabletoprovideasmuchinformationtopotentialinvestorsaswouldbetrueotherwise.Itmaycause"marketoverhand"whichwilldepressmarketprices.Whatarethedifferentsourcesofventure-capitalfinancing?Privatepartnershipsandcorporations,largeindustrialorfinancialcorporation,andwealthyfamiliesandindividuals.Whatarethedifferentstagesforcompaniesseekingventurecapitalfinancing?Seedmoney,start-up,andthenfirstthroughfourthroundfinancingasthecompanygetsofftheground.Whatistheprivateequitymarket?Theprivateequitymarketinvolvestheissuanceofsecuritiestoasmallnumberofprivateinvestorsorcertainqualifiedinstitutionalinvestors.WhatisRule144A?Rule144Aestablishesalegalframeworkfortheissuanceofprivatesecuritiestoqualifiedinstitutionalinvestors.AnswerstoEnd-of-ChapterProblemsa.Ageneralcashofferisapublicissueofasecuritythatissoldtoallinterestedinvestors.Ageneralcashofferisnotrestrictedtocurrentstockholders. Arightsofferisanissuancethatgivesthecurrentstockholderstheopportunitytomaintainaproportionateownershipofthecompany.Thesharesareofferedtocurrentshareholdersbeforetheyareofferedtothegeneralpublic.AregistrationstatementisthefilingwiththeSEC,whichdisclosesallpertinentinformationconcerningthecorporationthatwantstomakeapublicoffering. Aprospectusisthelegaldocumentthatmustbegiventoeveryinvestorwhocontemplatespurchasingregisteredsecuritiesinapublicoffering.Theprospectusdescribesthedetailsofthecompanyandtheparticularissue.Aninitialpublicoffering(IPO)isoriginalsaleofacompany’ssecuritiestothepublic.AnIPOisalsocalledanunseasonedissue.Aseasonednewissueisanewissueofstockafterthecompany’ssecuritieshavepreviouslybeenpubliclytraded. ShelfregistrationisanSECprocedure,whichallowsafirmtofileamasterregistrationstatementsummarizingtheplannedfinancingforatwoyearperiod.Thefirmfilesshortformswheneveritwishestosellanyoftheapprovedregistrationsecuritiesduringthetwoyearperiod.a. TheSecuritiesExchangeActof1933regulatesthetradingofnew,unseasonedsecurities. TheSecuritiesExchangeActof1934regulatesthetradingofseasonedsecurities.Thisactregulatestradinginwhatiscalledthesecondarymarket.Competitiveofferandnegotiatedofferaretwomethodstoselectinvestmentbankersforunderwriting.Underthecompetitiveoffers,theissuingfirmcanawarditssecuritiestounderwriterwiththehighestbid,whichinturnimpliesthelowestcost.Ontheotherhand,innegotiateddeals,underwritergainsmuchinformationabouttheissuingfirmthroughnegotiation,whichhelpsincreasethepossibilityofasuccessfuloffering.a. Firmcommitmentunderwritingisanunderwritinginwhichaninvestmentbankingfirmcommitstobuytheentireissue.Itwillthensellthesharestothepublic.Theinvestmentbankingfirmassumesallfinancialresponsibilityforanyunsoldshares. Asyndicateisagroupofinvestmentbankingcompaniesthatagreetocooperateinjointventuretounderwriteanofferingofsecurities.Thespreadisthedifferencebetweentheunderwriter’sbuyingpriceandtheofferingprice.Thespreadisafeefortheservicesoftheunderwritingsyndicate. Besteffortsunderwritingisanofferinginwhichtheunderwriteragreestodistributeasmuchoftheofferingaspossible.Anyunsoldportionsoftheofferingarereturnedtotheissuingfirm.a. Theriskinafirmcommitmentunderwritingisbornebytheunderwriter(s).Thesyndicateagreestopurchaseallofanoffering.Thentheysellasmuchofitaspossible.Anyunsoldsharesremaintheresponsibilityoftheunderwriter(s).riskthatthesecurity’spricemaybecomeunfavorablealsolieswiththeunderwriter(s). Theissuingfirmbearstheriskinabesteffortsunderwriting.Theunderwriter(s)agreestomakeitsbestefforttosellthesecuritiesforthefirm.Anyunsoldsecuritiesaretheresponsibilityofthefirm.Ingeneral,thenewpricepershareaftertheofferingis:P=(marketvalue+proceedsfromoffering)/totalnumberofi. At$40P=($400,000+($40x5,000))/15,000=$40ii. At$20P=($400,000+($20x5,000))/15,000=iii. At$10P=($400,000+($10x5,000))/15,000=$30Thepoorperformanceresultshouldnotsurprisetheprofessor.Sincehesubscribedtoinitialpublicoffering,hewasboundtogetfewersuperiorperformersandmorepoorperformers.Financialanalystsstudiedthecompaniesandseparatedthebadprospectsfromthegoodones.Theanalystsinvestedinonlythegoodprospects.Theseissuesbecameoversubscribed.Sincethesegoodprospectswereoversubscribed,theprofessorreceivedalimitedamountofstockfromthem.Thepoorprospectswereprobablyunder-subscribed,sohereceivedasmuchoftheirstockashedesired.Theresultwasthathisperformancewasbelowaveragebecausetheweightonthepoorperformersinhisportfoliowasgreaterthantheweightonthesuperiorperformers.Thisresultiscalledthewinner’scurse.Theprofessor“won”theshares,buthisbanewasthattheshareshe“won”werepoorperformers.Therearetwopossiblereasonsforstockpricedropsontheannouncementofanewissue:Managementmayattempttoissuenewsharesofstockwhenthestockisover-valued,thatis,theintrinsicvalueislowerthanthemarketprice.Thepricedroptheresultofthedownwardadjustmentoftheovervaluation.Withtheincreaseoffinancialdistresspossibility,thefirmismorelikelytoraisecapitalthroughequitythandebt.Themarketpricedropsbecauseitinterpretsequityissueannouncementasbadnews.Thecostsofnewissuesincludeunderwriter’sspread,directandindirectexpenses,negativeabnormalreturnsassociatedwiththeequityofferannouncement,under-pricing,andgreen-shoeoption.19.10a. $12,000,000/$15=b. 2,400,000/800,000=3c. Theshareholdersmustremit$15andthreerightsforeachshareofnewstockwishtopurchase.a. Ingeneral,theex-rightspriceisP=(Marketvalue+Proceedsfromoffering)/TotalnumberofsharesP=($25x100,000+$20x10,000)/(100,000+10,000)=$24.55 Thevalueofarightisthedifferencebetweentherights-onpriceofthestocktheex-rightspriceofthestock.Thevalueofarightis$0.45(=$25-$24.55).Alternativesolution:Thevalueofarightcanalsobecomputedas:(Ex-rightsprice-Subscriptionprice)/NumberofrightsrequiredtobuyashareofstockValueofaright=($24.55-$20)/10=$0.45Themarketvalueofthefirmaftertheissueisthenumberofsharestimestherightsprice.Value=110,000x$24.55 $2,700,000(Notethattheexactex-rightspriceis$24.5454.) Themostimportantreasontoofferrightsistoreduceissuancecosts.Also,offeringsdonotdiluteownershipandtheyprovideshareholderswithmoreflexibility.Shareholderscaneitherexerciseorselltheirrights.Thevalueofaright=$50-$45=$5Thenumberofnewshares=$5,000,000/$25=200,000Thenumberofrights/share=($45-$25)/$5=4Thenumberofoldshares=200,000x4=800,000a. Assumeyouholdthreesharesofthecompany’sstock.Thevalueofyourholdingsbeforeyouexerciseyourrightsis3x$45=$135.Whenyouexercise,youmustremitthethreerightsyoureceiveforowningthreeshares,andtendollars.Youincreasedyourequityinvestmentby$10.Thevalueofyourholdingsis$135+$10=$145.Afterexercise,youownfoursharesofstock.Thus,thepricepershareofyourstockis$145/4=$36.25. Thevalueofarightisthedifferencebetweentherights-onpriceofthestocktheex-rightspriceofthestock.Thevalueofarightis$8.75(=$45-$36.25).Thepricedropwilloccurontheex-rightsdate.Althoughtheex-rightsdateisneithertheexpirationdatenorthedateonwhichtherightsarefirstexercisable,itisthedaythatthepricewilldrop.Ifyoupurchasethestockbeforetheex-rightsdate,youwillreceivetherights.Ifyoupurchasethestockonoraftertheex-rightsdate,youwillnotreceivetherights.Sincerightshavevalue,thestockholderreceivingtherightsmustpayforthem.Thestockpricedropontheex-rightsdayissimilarthestockpricedroponanex-dividendday.19.14a. Stockprice(ex-right)=(13+2)/(1+0.5)=Subscriptionprice=2/0.5=$4Right’sprice=13-10=$3=(10-4)/2=$3b. Stockprice(ex-right)=(13+2)/(1+0.25)=Subscriptionprice=2/0.25=$8Right’sprice=13-12=$1=(12-8)/4=$1c. Thestockholders’wealthisthesamebetweenthetwoarrangements.Iftheinterestofmanagementistoincreasethewealthofthecurrentshareholders,arightsofferingmaybepreferablebecauseissuingcostsasape