The board of directors of Smith Brothers is planning an initial public offering. Management is trying to estimate the share price for its IPO. The company plans to issue 400,000 shares. The consensus forecast among analysts who follow the company is for EPS to be $4.75, up from the company's most recent earnings per share of $4.00. Four comparable firms have been identified for which their EPS and share prices are shown below: Share Price $11.55 Firm EPS 1 $3.30 3.50 15.75 3 2.25 9.00 4 2.70 13.50

The board of directors of Smith Brothers is planning an initial public offering. Management is trying to estimate the share price for its IPO. The company plans to issue 400,000 shares. The consensus forecast among analysts who follow the company is for EPS to be $4.75, up from the company's most recent earnings per share of $4.00. Four comparable firms have been identified for which their EPS and share prices are shown below: Share Price $11.55 Firm EPS 1 $3.30 3.50 15.75 3 2.25 9.00 4 2.70 13.50

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

Labrador technologies Inc. plans to become public soon. The current owners would like to know the value of each share of common equity so they price their shares correctly for potential investors. The WACC for this firm is 10.46% and there are 63,314 common shares outstanding. The firm has outstanding debt with a market value of $2,840,088 and has no preferred equity. Use the DCF valuation model based on the expected FCFs shown below; year 1 represents one year from today and so on. The company expects to grow at a 2.8% rate after Year 5. Rounding to the nearest penny, what is the value of each share of common stock? Period Free Cash Flow Year 1 $1,004,648 Year 2 $1,442,144 Year 3 $1,311,927 Year 4 $2,319,814 Year 5 $2,598,958
Labrador technologies Inc. plans to become public soon. The board of directors would like to know the value of common equity and have asked for your opinion. The firm has $1,249,917 in preferred equity and the market value of its outstanding debt equals $2,049,396. The WACC for this firm is estimated to be 8.92%. For this example assume the current assets are zero. Use the DCF valuation model with the expected FCFs shown below; year 1 represents one year from today and so on. The company expects to grow at a 3.0% rate after Year 5. Rounding to the nearest penny, what is the value of common equity? Free Cash Period Flow Year 1 $1,370,274 Year 2 $1,761,479 Year 3 $1,909,652 Year 4 $2,361,090 Year 5 $2,744,645
Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get for me. After 3 months, my investment record is as follows: IPO A B C D Shares Allocated to Me 500 200 1,000 0 Average underpricing Price per Share $10 20 8 12 a. What is the average underpricing in dollars of this sample of IPOs? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Average initial return Initial Return 7% 12 2 23 b. What is the average initial return on my "portfolio" of shares purchased from the four IPOs that I bid on? When calculating this average initial return, remember to weight by the amount of money invested in each issue. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) %
Gloria Enterprises plans to go public with a public offering. Management would like to determine the potential price for its shares of common stock based on comparable price-earnings multiples. Gloria Enterprises reports earnings of $208,000 and plans to issue 80,000 shares of stock. The EPS and share price of three comparable firms are shown below: Firm EPS Share Price A $2.50 $ 89.20 В 3.60 119.70 2.00 83.54 Calculate the value of a share of Gloria Enterprises' stock using the price-earnings multiples method for both a trailing multiple and a forward multiple.
The board of Wicker Home Health Care, Inc., is exploring ways to expand the number of shares outstanding in an effort to reduce the market price per share to a level that the firm considers more appealing to investors. The options under consideration are a 10% stock dividend and, alternatively, a 5-for-4 stock split. At the present time, the firm's equity account and other per-share information are given as follows (SEE ATTACHED TABLE) a. Show the effect on the equity accounts and per-share data of a 10% stock dividend. b. Show the effect on the equity accounts and per-share data of a 5-for-4 stock split. c. Which option will accomplish Wicker's goal of reducing the current stock price while maintaining a stable level of retained earnings? d. What legal constraints might encourage the firm to choose a stock split over a stock dividend? SCREENSHOTS PROVIDED FOR YOUR REFERENCE
David's Watersports Firm is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $16.85 per share for 550,000 shares. The company will receive $15.40 per share and will incur $180,000 in registration, accounting, and printing fees. A. What is the spread on this issue in percentage terms? What are the total expenses of the issue as a percentage of total value (at retail)? B. If the firm wanted to net $15.99 million from this issue, how many shares must be sold?
1) You are a big fan of investing in IPOs and three new IPOs are expected to hit the market this month. Assume the IPO price is $40/share for all three IPOs. When the three IPOs hit the market, they have the following characteristics: IPO Price 1st Day Market Price IPO A $40 $43 IPO B $40 $52 IPO C $40 $55 What was the average underpricing of the three IPOs? Compute the underpricing of each IPO, then take the average of the three. 2) You purchased a machine for $100,000 and you depreciate it using straight-line depreciation over its 10-year life. If you sell the machine at the end of year 6 for $22,000, what will be your after-tax salvage value? Your tax rate is 0.21? 3) You are beginning a new 5-year project that will require $90,969 in initial net working capital (t=0), which you will get back at the end of year 5. If your WACC for this project is 10%, what is the effect of the net working capital on the NPV of the project? 4) If your WACC is…
Hughes Technology Corp. recently went public with an initial public offering in which it received a total of $84.35 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $18.05 and the underwriter’s spread was $1.30. Hughes also paid legal and other administrative costs of $2.75 million for the IPO. Calculate the number of shares issued through this IPO. (Enter your answer in millions. Round your answer to 2 decimal places.)
The Scandrick Corporation needs to raise $42 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $40 per share and the company's underwriters charge a spread of 6 percent. If the SEC filing fee and associated administrative expenses of the offering are $625,000, how many shares need to be sold? (Do not round intermediate calculations and enter your answer in shares, not millions of shares, rounded to the nearest whole number, e.g., 1,234,567.)
Answer the following questions in a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link. Bad Boys, Inc. is evaluating its cost of capital. Under consultation, Bad Boys, Inc. expects to issue new debt at par with a coupon rate of 8% and to issue new preferred stock with a $2.50 per share dividend at $25 a share. The common stock of Bad Boys, Inc. is currently selling for $20.00 a share. Bad Boys, Inc. expects to pay a dividend of $1.50 per share next year. An equity analyst foresees a growth in dividends at a rate of 5% per year. The Bad Boys, Inc. marginal tax rate is 35%. If Bad Boys, Inc. raises capital using 45% debt, 5% preferred stock, and 50% common stock, what is Bad Boys, Inc.’s cost of capital? If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is Bad Boys, Inc.’s cost of capital?
Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the total per-share underwriting fees to the investment banker?
A tech firm that has developed a new type of internet browser is planning an IPO of 7,000,000 shares of common stock. The investment banking house that is underwriting the IPO has presented the tech firm with two possible plans of action: Plan 1: An underwritten offer of $10.00 per share plus a fee of 6% of the gross proceeds. Plan 2: A best efforts offering at $10.25 per share. An underwriting commission of 2.4% plus $119,000 will be paid to the investment bank. The investment bank is expecting to sell 96% of the offering. What are the net proceeds to the tech firm if they choose Plan 1? (Do not round intermediate calculations. Round your answer to a whole number.)