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Chapter 5: 11DQ (page 493)

What is privatization?

Short Answer

Expert verified

In the process of privatization, investment bankers sell companies owned by the government to private individuals or authorities.

Step by step solution

01

Privatization

Privatization refers to the process of transferring the ownership of publicly owned companies in the hands of private authorities.

Generally, such companies are owned by private individuals, mutual funds, pension funds, and other investors.

02

Private industries

Incommunist and socialist countries, auto industries, steel industries, and aerospace industries have been operated by private authorities.

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Most popular questions from this chapter

Explain the role of financial intermediaries in the flow of funds through the three-sector economy.

Tyson Iron Works is about to go public. It currently has after-tax earnings of \(4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at \)25 per share with a 3 percent spread on the offering price. There will also be $280,000 in out-of-pocket costs to the corporation.

d. Determine what rate of return must be earned on the net proceeds to the corporation so there will not be a dilution in earnings per share during the year of going public.

What is a key tax characteristic associated with state and local (municipal) securities?

What is shelf registration? How does it differ from the traditional requirements for security offerings?

The Wrigley Corporation needs to raise \(44 million. The investment banking firm of Tinkers, Evers & Chance will handle the transaction.

  1. If stock is utilized, 2,300,000 shares will be sold to the public at \)20.50 per share. The corporation will receive a net price of \(19 per share. What is the percentage underwriting spread per share?
  2. If bonds are utilized, slightly over 43,700 bonds will be sold to the public at \)1,009 per bond. The corporation will receive a net price of $994 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.)
  3. Which alternative has the larger percentage of spread? Is this the normal relationship between the two types of issues?
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