Business Accounting & Finance A4 Assignment

JANUARY 2020 SEMESTER ASSIGNMENT QUESTIONS1Business Accounting & Finance A4 Assignment Final Individual AssignmentVALUE CREATIONAssignment Instructions: Assignment ReferenceBAF/StudentNumber/Jan20/A4Due Date28 May 2020Word countMax. 2,500 wordsWeighting25% of the total mark for the courseFile FormatMS Office or PDFSubmission DetailsTurnitin instructions provided onBlackboard Assignment Question:The assignment is based on the following documents A case study Ferrari: The 2015 Initial Public OfferingFerrari IPO prospectusAn Excel file containing daily share price of Ferrari since its IPO(RACE shareprice)Ferraris Annual Report 2018 Read the above documents and the IPO book (e-copy available on Blackboard)to answer the following questions. You may wish to use externalreferences/material from credible sources (such as financial press, journalarticles):(i) An IPO marks a strategic milestone for a company.(a) Explain the generic benefits and drawbacks of going public.(b) What may have motivated Ferrari (Ticker symbol RACE) to go public?(c) Why do you think Ferrari chose to list on New York Stock Exchange?(d) What can you say about the primary and secondary shares sold in theFerrari IPO? (16 marks)(ii) What is an IPO over-allotment (Greenshoe) option? Did Ferrari include such anoption in its IPO? (6 marks)(iii) The underwriting investment bank takes on a central role in the IPO process.(a) What are the key tasks executed by the underwriter?(b) What are primary considerations when selecting an underwriter?JANUARY 2020 SEMESTER ASSIGNMENT QUESTIONS2(c) Often, multiple underwriters are involved. In the case of Ferrari, a syndicateof 7 underwriters was involved in the IPO. What are the main motivations forsyndication?(d) How much compensation was paid to the underwriters of Ferrari? Do youthink it is comparable to the average compensation paid to underwriters in USIPOs?(e) What do you understand by price-stabilization activities conducted by theunderwriter(s)? Do you think the underwriters were involved in pricestabilization of the Ferrari IPO? (25 marks)(iv) Describe what happens during book-building of an IPO. What price range wasused for book building of the Ferrari IPO? Why do you think Ferrari priced its offeringat the top end of the book-building range? (10 marks)(v) Based on the information given in the case study and the IPO prospectus, discussthe pricing of the Ferrari IPO. Would you have invested in Ferrari at this price?(10 marks)(vi) What are IPO lock-up agreements? Describe the lock-up agreement of the FerrariIPO. (5 marks)(vii) The diagram below shows the performance of Ferrari shares from October 2015to September 2019. The first day of public trading of RACE shares was 21 October2015. Shares were sold in the IPO at an offer price of $52. More information on dailyshare price movements is available in the Excel file (RACE shareprice).Source: Yahoo Finance02040608010012014016018021/10/201521/12/201521/02/201621/04/201621/06/201621/08/201621/10/201621/12/201621/02/201721/04/201721/06/201721/08/201721/10/201721/12/201721/02/201821/04/201821/06/201821/08/201821/10/201821/12/201821/02/201921/04/201921/06/201921/08/2019RACE shareprice performance ClosingJANUARY 2020 SEMESTER ASSIGNMENT QUESTIONS3Based on a visual examination of the chart above, how does the performance of theFerrari IPO compare with average IPO performance documented by past empiricalstudiesi. in terms of the short term (1st trading day)?ii. and over the longer term (4 years)?Past studies have suggested a number of explanations for short-run underpricing andlong-run underperformance of IPOs. Discuss the ones which you think are relevant toFerraris case? (16 marks)(viii) In the light of the main theories of capital structure, provide a discussion of theevolution of the capital structure of Ferrari since its IPO. You will find the Annual Report2018 helpful in answering this question. (12 marks)End of Assignment

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