Question

Lingadalli Corporation (PLC) is considering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC has no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC's intrinsic value of operations is $210 million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued shares. Answer the following questions. Inputs Value of operations (VPre-IPO) $210 million Number of existing shares (Existing) 12 million Target net proceeds $30 million Flotation costs (F) 7% a. What is the intrinsic stock price per share before the IPO

Answer 1

The intrinsic stock price per share before the IPO for Lingadalli Corporation is calculated by dividing the company's value of operations ($210 million) by the number of existing shares (12 million), resulting in an intrinsic value of $17.50 per share.

Step-by-step explanation:

The intrinsic stock price per share before the IPO can be calculated by dividing the intrinsic value of operations by the number of existing shares. The intrinsic value of operations, given as $210 million, represents the total value of the firm's operations. The number of existing shares is 12 million. Therefore, the stock price per share before the IPO is:

Value of operations / Number of existing shares = $210,000,000 / 12,000,000 = $17.50 per share.

Answer 2

$ 17.50

Step-by-step explanation:

The intrinsic stock price per share before the IPO can be determined using the company's details before the IPO, in other words, the intrinsic value per share before the initial public offer is the pre-IPO value of the company divided by its number of existing shares which is computed thus:

intrinsic stock price per share before the IPO=LC's intrinsic value of operations/Number of existing shares

LC's intrinsic value of operations= $210 million

Number of existing shares= 12 million

intrinsic stock price per share before the IPO=$210 million/12 million

intrinsic stock price per share before the IPO=$ 17.50