In this workouts, FE Solutions, SPAC and Case Incorporated have merged. We're asked to calculate the total return to the sponsor and the initial SPAC shareholders, assuming that the merger was concluded two years after the IPO and the merged entity trades at $12.50 per share. We're also told as the original sponsor shares were issued at par value, the cost was minimal and is excluded from this analysis. So we have a table underneath it. We need to look at the SPAC shareholders' initial investments, then their cash flows out, and we'll then calculate their IRR.

So their initial investment was the 55 million proceeds that they put in, and I'll put that in as a negative to help me with the IRR function later. However, two years later, 40% of the shareholders decided to redeem. So I can take the initial amount of money they put in, which was the 5.5 times by the 10, and multiply that by 40%.

We can see that they came out with 22 million in cash. What are the cash flows did they receive? Well, the post merger shares the 60% of them that stuck around. They managed to see their share price go up to $12.50. They had 3.6 million shares after the 40% redemption.

So our total cash flows in year zero was 55 million negative, i.e. invested. We then had zero cashflows the next year, and then we came out with 66.6 in the final year. I can use the IRR function to help me out. The IRR function calculates an annualized percentage return, and this shows me that the SPAC shareholders got a 10% return each year for two years.

Now, let's do the same thing for the sponsor. The sponsor's initial investments, well, they paid par value for their promote shares, so they were virtually worthless, but they paid 3.5 million for their warrants.

Then the next year we had management fee. Now that means they receive a fee for their work done. Their total fees, which were 0.6, were spread over two years. So I'm going to lock that and divide it by two. They receive 0.3 in each of the first and second year. Then in the final year, we need to find the value of their post merger shares. Each share is valued at 12.5. And how many shares did they have? They had 1.7 million.

So their initial investments in year zero, 3.5.

Then in year one, they received some cash out of 0.3, and in the final year, they received a large cash flow of 20.9. So this IRR is going to be quite a bit higher. Now they invested 3.5, then they got two cash flows received, giving them an annual percentage return of 150%. So in the first year, they've got 150% return, and then the second year, 150% return. That's averaged over those two years. So high incentives for the sponsors to make a success of a SPAC deal.