Question
9)The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D1) at the end of the current year will be $1.25. The growth rate (g) is 9 percent and the discount rate (Ke) is 12 percent.
a.What should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Price of the stock$ b.If there is a 5 percent total underwriting spread on the stock, how much will the issuing corporation receive? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Net price to the corporation$ c.If the issuing corporation requires a net price of $40.17 (proceeds to the corporation) and there is a 5 percent underwriting spread, what should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Necessary public price$
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Question
8)American Health Systems currently has 7,000,000 shares of stock outstanding and will report earnings of $14 million in the current year. The company is considering the issuance of 1,600,000 additional shares that will net $50 per share to the corporation. a.What is the immediate dilution potential for this new stock issue? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Dilution$ per share b-1.Assume that American Health Systems can earn 9 percent on the proceeds of the stock issue in time to include them in the current year’s results. Calculate earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Earnings per share$ b-2.Should the new issue be undertaken based on earnings per share? YesNo
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Question
7)Becker Brothers is the managing underwriter for a 1.70-million-share issue by Jay’s Hamburger Heaven. Becker Brothers is “handling” 15 percent of the issue. Its price is $27 per share and the price to the public is $29.00.
Becker also provides the market stabilization function. During the issuance, the market for the stock turned soft, and Becker is forced to purchase 55,000 shares in the open market at an average price of $28.00. They later sell the shares at an average value of $27.55.
Compute Becker Brothers’ overall gain or loss from managing the issue. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) (Click to select)Net lossNet gain$
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Question
6)
The Landers Corporation needs to raise $1.40 million of debt on a 10-year issue. If it places the bonds privately, the interest rate will be 10 percent. Fifteen thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 12 percent, and the underwriting spread will be 3 percent. There will be $150,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 10-year period, at which time it will be repaid. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a.For each plan, compare the net amount of funds initially available—inflow—to the present value of future payments of interest and principal to determine net present value. Assume the stated discount rate is 18 percent annually. Use 9.00 percent semiannually throughout the analysis. (Disregard taxes.)(Assume the $1.40 million needed includes the underwriting costs. Input your present value of future payments answers as negative values. Do not round intermediate calculations and round your answers to 2 decimal places.) Private Placement Public Issue Net amount to Landers$ $ Present value of future payments Net present value$ $ b.Which plan offers the higher net present value?
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