Question

When Microsoft went public, the company sold 4 million new shares (the primary issue). In addition, existing shareholders sold 0.9 milion shares (the secondary issue) and kept 216 million shares. The new shares were offered to the public at $24, and the underwniters received a spread of $1.81 a share. At the end of the first day's trading, the market price was $38 a share. a. How much money did the company receive before paying its portion of the direct costs? (Do not round intermediote calculations. Enter your answer in millions rounded to 2 decimal ploces.) b. How much did the existing shareholders receive from the sale of their shares before paying their portion of the direct costs? (Do not round intermediate colculations. Enter your answer in millions rounded to 3 decimal places.) c. If the issue had been sold to the underwiters for $33 a share, how many shares would the company have needed to sell to rarse the same amount of cash? (Do not round intermediote colculations. Enter your onswer in millions rounded to 3 decimal places.) d. How much better off would the existing shareholders have been if the issue had been sold to the underwriters for $33 a share? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimol ploces.)

Answer 1

a. The company received $96 million before paying its portion of the direct costs. b. The exact amount the existing shareholders received cannot be determined without knowing the purchase price. c. The company would have needed to sell approximately 2.909 million shares to raise the same amount of cash if the issue had been sold to the underwriters for $33 a share. d. The exact amount of how much better off the existing shareholders would have been determined without knowing the purchase price.

Step-by-step explanation:

a. The company received money for the 4 million new shares sold to the public. The price per share was $24, so the company received 4 million x $24 = $96 million before paying its portion of the direct costs.

b. The existing shareholders sold 0.9 million shares to the public. The price per share was not mentioned, so we can't calculate the exact amount of money they received. However, we know that the market price at the end of the first day's trading was $38. Without knowing the purchase price, we can't determine the exact amount the existing shareholders received.

c. If the issue had been sold to the underwriters for $33 a share, the company would have needed to sell a number of shares that would raise the same amount of cash as before, which was $96 million. Let's assume x represents the number of shares:

$33 * x = $96 million

x = $96 million / $33

x = 2.909 million shares

Therefore, the company would have needed to sell approximately 2.909 million shares to raise the same amount of cash.

d. To calculate how much better off the existing shareholders would have been if the issue had been sold to the underwriters for $33 a share, we need to compare the market price they received with the hypothetical issue price. Without knowing the purchase price, we can't determine the exact amount.