Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Textbook Question
Chapter 15, Problem 5P
Jordan Broadcasting Company is going public at
a. What is the immediate dilution based on the new corporate shares that are being offered?
b. If the stock has a P/E of 30 immediately after the offering, what will the stock price be?
c. Should the founding stockholders be pleased with the
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The Windsor Corporation has 120,000 shares outstanding with a current market price of $8.10 per
share. The company needs to raise an additional $36,000 to finance new expenditures, and has
decided on a rights issue. The issue will allow current stockholders to purchase one additional
share for 20 rights at a subscription price of $6
per
share.
a) How many new shares must be issued?
b) What will be the ex-rights stock price?
c) If the ex-rights price were set at $7.90, would you as a potential new stockholder choose to
buy shares ex-rights or buy shares at the old price and exercise your rights?
d) Suppose that the company was also considering structuring the rights issue to allow for an
additional share to be purchased for 10 rights at a subscription price of $3. Prove that a
stockholder with 100 shares would be indifferent between purchasing a new share for 10
rights at $3 or purchasing a new share for 20 rights at $6.
e) Why do you think the company chose a rights issue rather than a…
Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6 million before recording the new issue. What is the amount of dilution in earnings per share?
Jordan Broadcasting Company is going public at $47 net per share to the company. There also are founding stockholders that are
selling part of their shares at the same price. Prior to the offering, the firm had $31 million in earnings divided over 8 million shares. The
public offering will be for 4 million shares; 2 million will be new corporate shares and 2 million will be shares currently owned by the
founding stockholders.
a. What is the immediate dilution based on the new corporate shares that are being offered? (Do not round intermediate calculations
and round your answer to 2 decimal places.)
Dilution
b. If the stock has a P/E of 20 immediately after the offering, what will the stock price be? (Do not round intermediate calculations
and round your answer to 2 decimal places.)
5
Stock price
per share
c. Should the founding stockholders be pleased with the $47 they received for their shares?
Ⓒ Yes
O No
MASSASINSHER
Chapter 15 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 15 - Prob. 1DQCh. 15 - Prob. 2DQCh. 15 - Prob. 3DQCh. 15 - Prob. 4DQCh. 15 - Prob. 5DQCh. 15 - Prob. 6DQCh. 15 - Prob. 7DQCh. 15 - Prob. 8DQCh. 15 - Prob. 9DQCh. 15 - Prob. 10DQ
Ch. 15 - What is privatization? (LO15-5)Ch. 15 - Louisiana Timber Company currently has 5 million...Ch. 15 - The Hamilton Corporation Company has 4 million...Ch. 15 - American Health Systems currently has 6,400,000...Ch. 15 - Using the information in Problem 3, assume that...Ch. 15 - Jordan Broadcasting Company is going public at 50...Ch. 15 - Prob. 6PCh. 15 - Tiger Golf Supplies has 25 million in earnings...Ch. 15 - Prob. 8PCh. 15 - Walton and Company is the managing investment...Ch. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 12PCh. 15 - Prob. 13PCh. 15 - Prob. 14PCh. 15 - Prob. 15PCh. 15 - Prob. 16PCh. 15 - Prob. 17PCh. 15 - Midland Corporation has a net income of 19...Ch. 15 - Prob. 19PCh. 15 - Prob. 20PCh. 15 - Prob. 21PCh. 15 - Prob. 22P
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