
a.
To calculate: Net proceeds to Tyson Iron Works.
Introduction:
Net Proceeds:
It is the amount received by the seller of shares after the deduction of all the expenses and costs incurred for making such sales.
a.

Answer to Problem 20P
The net proceeds on the sale of shares to Tyson Iron Works is $11,845,000.
Explanation of Solution
Calculation of net proceeds:
Working Notes:
Calculation of net price:
Calculation of proceeds before out-of-pocket expenses:
b.
To calculate: The EPS of Tyson Iron Works immediately prior to the issue of stock.
Introduction:
Earnings per share (EPS):
It is the profit earned by shareholders on each share. A higher EPS indicates a higher value of the company because investors are ready to pay a higher price for one share of the company.
b.

Answer to Problem 20P
The EPS of Tyson Iron Works immediately prior to the issue of stock is $1.05.
Explanation of Solution
Calculation of the EPS immediately prior to the issue of stock:
c.
To calculate: The EPS of Tyson Iron Works immediately post the issue of stock.
Introduction:
Earnings per share (EPS):
It is the profit earned by shareholders on each share. A higher EPS indicates a higher value of the company because investors are ready to pay a higher price for one share of the company.
c.

Answer to Problem 20P
The EPS of Tyson Iron Works immediately post the issue of stock is $0.94.
Explanation of Solution
Calculation of the EPS immediately post the issue of stock:
d.
To determine: The
Introduction:
Rate of Return (ROR):
A measurement of the
d.

Answer to Problem 20P
The ROR that must be earned to prevent any dilution in an EPS of $1.05 is 4.52%.
Explanation of Solution
The calculation of ROR without the dilution of EPS is shown below.
Hence, 4.52% is the rate of return required to be earned on the net proceeds to earn an EPS of $1.05.
Working Notes:
Calculation of incremental earnings:
Calculation of earnings:
e.
To determine: The rate of return that must be earned by Tyson Iron Works on its proceeds to earn a 10% increase in its EPS during the year it went public.
Introduction:
Rate of Return (ROR):
A measurement of the profit earned or loss incurred on an investment over a specific time-period is the ROR. It compares the gain/loss to the costs incurred on the initial investment.
e.

Answer to Problem 20P
The ROR that must be earned to earn an increase of 10% in EPS is 8.88%.
Explanation of Solution
The calculation of ROR to earn an increase of 10% in EPS is shown below.
Hence, 8.88% is the rate of return required to be earned on the net proceeds to earn an increase of 10% in the EPS.
Working Notes:
Calculation of incremental earnings:
Calculation of earnings with a 10% increase:
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Chapter 15 Solutions
Foundations of Financial Management
- no ai .What is the enterprise value of a business?* The market value of equity of the business The book value of equity of the business The entire value of the business without giving consideration to its capital structure The entire value of the business considering its capital structurearrow_forward10. The concept of time value of money is that* The cash flows that occur earlier are more valuable than cash flows that occur later The cash flows that occur earlier are less valuable than cash flows that occur later The longer the time cash flows are invested, the more valuable they are in the future The future value of cash flows are always higher than the present value of the cash flows .arrow_forward9. Which of the following is true when a bond is trading at a discount?* Coupon Rate > Current Yield > Yield to Maturity Coupon Rate < Current Yield < Yield to Maturity Coupon Rate = Current Yield = Yield to Maturity Coupon Rate < Current Yield = Yield to Maturity.arrow_forward
- When the price of a bond is above the face value, the bond is said to be* Trading at par Trading at a premium Trading at a discount Trading below pararrow_forward7. What is a par value of a bond?* The amount borrowed by the issuer of the bond and returned to the investors when the bond matures The overall return earned by the bond investor when the bond matures The difference between the amount borrowed by the issuer of bond and the amount returned to investors at maturity The size of the coupon investors receive on an annual basisarrow_forwardWhat is an annuity?* An investment that has no definite end and a stream of cash payments that continues forever A stream of cash flows that start one year from today and continue while growing by a constant growth rate A series of equal payments at equal time periods and guaranteed for a fixed number of years A series of unequal payments at equal time periods which are guaranteed for a fixed number of yearsarrow_forward
- If you were able to earn interest at 3% and you started with $100, how much would you have after 3 years?* $91.51 $109.27 $291.26 $103.00arrow_forwardNo AI 2. The formula for calculating future value (FV) is* FV = PV/(1+r)^n FV = PV/(1+r)*n FV = PV x (1+r)^n FV = PV x (1+r)*narrow_forwardDividend??? solnarrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT

