Reference no: EM132967277
Question - UNR Corporation is planning to go public, and it faces the problem of setting inappropriate price for the stock. As a financial analyst you're going to estimate an IPO price for the firm. You are given the following information about the firm.
The firm recently reported $ 20,000 of sales, $ 4000 of operating cost other than depreciation, $2000 of depreciation and amortization charges. The firm has $ 8500 of outstanding bonds that carry an 8% interest rate, and its federal plus state income tax rate was 25%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $ 4500 to buy new fixed assets and to invest $ 1500 in net operating working capital.
a) How much free cash flow to did the firm generate?
b) An analyst estimates that FCF should grow rapidly at a rate of 10% per year during years 1, 2, and 3: but after year3, growth should be a constant 6% per year, if the firms WACC is 15% what is a intrinsic value of the firm today?
c) Assume that CEO decides your calculations and part B or correct and set the firm's pre-IPO value to your estimated firm value and part B(pre-IPO value equals you're result in part). UNR S founders and early investors found 100 million shares before the IPO. UNR will sell 80 million new shares in the ipo. What is that IPO offer price for UNr? Investment bank spread was 10%.
d) Assume that the investment bank sold all shares at the IPO offer price you calculated and part C, what is the preceded underwriter gives to the company? You can use your findings from Part c to answer part d.
e) CEO is worried that he may lose control of the firm after the IPO. What would you suggest him to do?
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