Consider the economy above again where the following set of, Ask an Expert

Economics

Consider the economy (above) again where the following set of stocks is traded:

x₁=(2,2,0) x₂=(1,0,3) x₃=(0,2,4)

for the prices (p₁, p₂, p₃)=(1, 1, 1).

Suppose a start-up company wants to go public. The firm has total costs of $10,000 at date t=1 and sales of $20,000 in state 1, $30,000 in state 2, and $100.000 in state 3. The firm wants to issue 1,000 IPO shares. (A share is endowed with a cash flow right of 0.1% of the total profits of the firm.) The underwriter suggests an IPO price of $26 per share. Will this IPO be successful, i.e. will there be a positive demand for the shares?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9531291

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