Fundamentals of Corporate Finance

a. The underwriting spread in percentage terms. How does this spread compare to a typical IPO ?
b. The fraction of the offering that comprised primary shares and the fraction that comprised secondary shares.
c. The size, in number of shares, of the greenshoe provision. What percent of the deal did the greenshoe provision represent?
2. Next, navigate to Google Finance ( and search for “Facebook” . Determine the closing price of the stock on the day of the IPO (use the “Historical prices” link).  What was the first day return? How does this return compare to the typical IPO?
3. Using the data provided by Google Finance, calculate the performance of Facebook in the three-month post-IPO period. That is, calculate the annualized return an investor would have received if he had invested in Facebook at the closing price on the IPO day and sold the stock three months later. What was the return for a one-year holding period?
4. Prior to the public offering, Facebook was able to raise capital from all the sources mentioned in the chapter. Let’s concentrate on one particular source, Microsoft Corporation.
a. Microsoft made one investment in Facebook, during October 2007. Go to Facebook’s corporate news Web site ( ) and locate the press release announcing this investment. Using the number of shares owned by Microsoft listed in the IPO prospectus, calculate the per share price Microsoft paid.
b. Calculate the return (expressed on an annual basis) Microsoft earned on its investment up to the IPO (using the IPO price).
c. How much money did Microsoft receive from the IPO?

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