Assume that American Health Systems can earn 8 percent on the proceeds of the stock issue in time to include them in the current year’s results. Calculate earnings per share.

.

value:
1.00 points

 

American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of $13 million in the current year. The company is considering the issuance of 1,500,000 additional shares that will net $60 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 8 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?
Yes
No

 

9.

value:
1.00 points

 

Assume Sybase Software is thinking about three different size offerings for issuance of additional shares.

 

         Size of Offer Public Price Net to Corporation
   a. $ 2.4   million $ 46 $ 42.60
   b. 7.0   million 46 43.20
   c. 28.0   million 46 43.50

 

What is the percentage underwriting spread for each size offer? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Size of Offer     Underwriting Spread
  a. $2.4 million  %
  b. $7.0 million  %
  c. $28.0 million  %

 

0.

value:
2.00 points

 

The Wrigley Corporation needs to raise $35 million. The investment banking firm of Tinkers, Evers, & Chance will handle the transaction.

 

a. If stock is utilized, 2,200,000 shares will be sold to the public at $17.20 per share. The corporation will receive a net price of $16.00 per share. What is the percentage underwriting spread per share?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

  Underwriting spread per share  %

 

b. If bonds are utilized, slightly over 35,200 bonds will be sold to the public at $1,006 per bond. The corporation will receive a net price of $993 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

  Underwriting spread per bond  %

 

c-1. Which alternative has the larger percentage of spread?
Stock
Bond

 

c-2. Is this the normal relationship between the two types of issues?
Yes
No

 

11.

value:
2.00 points

 

Kevin’s Bacon Company Inc. has earnings of $5 million with 2,400,000 shares outstanding before a public distribution. Five hundred thousand shares will be included in the sale, of which 300,000 are new corporate shares, and 200,000 are shares currently owned by Ann Fry, the founder and CEO. The 200,000 shares that Ann is selling are referred to as a secondary offering and all proceeds will go to her.
     The net price from the offering will be $18.50 and the corporate proceeds are expected to produce $1.7 million in corporate earnings.

 

a. What were the corporation’s earnings per share before the offering? (Do not round intermediate calculations and round your answer to 2 decimal places.)

 

  Earnings per share $

 

b. What are the corporation’s earnings per share expected to be after the offering? (Do not round intermediate calculations and round your answer to 2 decimal places.)

 

  Earnings per share $

 

 

 

13.

value:
2.00 points

 

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 $1.50. The growth rate (g) is 7 percent and the discount rate (Ke) is 10 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 6 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 $48.50 (proceeds to the corporation) and there is a 6 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 $

 

 

14.

value:
3.00 points

 

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