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What you will learn
- Distinguish company proceeds from a selling shareholder’s proceeds.
- Calculate the share count after a new issue.
- Check that allocated shares and payments reconcile.
Prepare three roles for a 40-minute session
Use five minutes for the company card, ten for payments, ten for allocations, ten for checks and five for an individual closing question. Work in groups representing a company, a selling shareholder and applicants. Applicants here are students submitting invented orders; no purchase takes place and no personal details are needed.
Before the offering, 10,000 shares exist. The company issues 2,000 new shares and an existing owner sells 1,000 existing shares. The offering price is SEK 20 per share. Assume everything sells and the company pays SEK 3,000 in fixed costs. The existing owner’s costs are set to zero in this particular model.
If the table does not fit, scroll it sideways.
| Seller | Quantity × price | Gross payment |
|---|---|---|
| Company, new shares | 2,000 × SEK 20 | SEK 40,000 |
| Owner, existing shares | 1,000 × SEK 20 | SEK 20,000 |
| Total shares offered | 3,000 × SEK 20 | SEK 60,000 |
Student worksheet: draw two payment arrows
Draw an arrow from buyers to the company and another to the selling owner. Label gross proceeds, costs and net proceeds for each recipient. Also calculate the shares existing after the offering. Explain why the sale of existing shares is not added to the company’s total share count.
The answer is SEK 40,000 to the company before costs and SEK 37,000 after costs. The existing owner receives SEK 20,000. The share count becomes 10,000 + 2,000 = 12,000. Total buyer payments of SEK 60,000 therefore describe neither the company’s cash addition nor the value of the whole company. At the model price, all 12,000 shares are worth SEK 240,000.
An explicitly chosen allocation rule
Three orders request 2,000, 1,000 and 5,000 shares. Demand totals 8,000 shares but only 3,000 are offered. The class chooses proportional allocation: each order receives 3,000 / 8,000 = 3/8 of its requested quantity. This does not describe how every real IPO allocates shares.
Allocations are 750, 375 and 1,875 shares. Check the total of 3,000 before calculating payments. Actual model payments are SEK 15,000, 7,500 and 37,500, totalling SEK 60,000. Requesting 5,000 shares therefore does not produce a payment for 5,000 when only 1,875 are allocated.
If the table does not fit, scroll it sideways.
| Order | Shares allocated | Payment |
|---|---|---|
| 2,000 shares | 750 | SEK 15,000 |
| 1,000 shares | 375 | SEK 7,500 |
| 5,000 shares | 1,875 | SEK 37,500 |
Teacher prompts: check three totals
Ask a checking group to review shares offered, recipients’ gross proceeds and the share count after issuance. An answer of 13,000 shares likely counts the existing shares twice. Giving the company SEK 60,000 mixes in the owner’s payment. Show which card is needed to correct each error.
Then change just one order and discuss whether proportional allocation still produces whole shares. A rounding rule would be needed if it does not. That question is separate from where proceeds go. Investiq’s company guide supports further work on company identity; this worksheet does not provide IPO applications or allocations in the app.
Try it yourself
A new case has 5,000 existing shares; 600 new and 400 existing shares sell for SEK 15. Orders request 1,600 and 2,400 shares; 1,000 are allocated proportionally. Company costs are SEK 1,000. Find the allocations, net company proceeds and total share count.
Show the solution and explanation
Allocations are 400 and 600 shares. The company receives SEK 8,000 net, the owner SEK 6,000, and 5,600 shares exist in total.
1,000 / 4,000 = 1/4 of each order. Company proceeds are 600 × 15 − 1,000 = SEK 8,000; owner proceeds are 400 × 15 = SEK 6,000. Only the 600 new shares increase the total.
Check your understanding
Who receives payment when an existing share is sold?
In this model the selling owner, rather than the company.
Do many orders mean the next market price must rise?
No. The allocation calculation makes no forecast of the next price.
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Sources and examples
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
