Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
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
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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
Please fully explain
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…
Chapter 15 Solutions
Foundations of Financial Management
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- According to a company press release, on January 5, 2012, Hansen Natural Corporation changed its name to Monster Beverage Corporation. According to Yahoo Finance, on that day the value of the company stock (symbol: MNST) was $15.64 per share. On January 5, 2018, the stock closed at $63.49 per share. This represents an increase of nearly 306%. A. Discuss the factors that might influence the increase in share price. B. Consider yourself as a potential shareholder. What factors would you consider when deciding whether or not to purchase shares in Monster Beverage Corporation today?arrow_forwardMaxwell 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?arrow_forwardSoFi Technologies Inc. (SOFI) currently has 13 million shares of common stock outstanding and is selling for $215 a share. The company is planning to conduct a 5-for-1 stock split. If SOFI declares a 5-for-1 stock split, what will the price of the company’s stock be after the split—assuming that the total value of the firm’s stock remains the same before and after the split? How many shares of SOFI will be outstanding? Now imagine of instead of performing a stock split, SOFI decides to pay a stock dividend. If SOFI declares a 5.5% stock dividend, how many shares will the firm issue to existing shareholders? Now, in lieu of conducting a stock split or declaring a stock dividend, SOFI decides to buyback 1,500,000 shares of stock at market price. How much cash will it take to perform this buyback? Using the same information as Question #4, if SOFI performs the buyback, what should the new market share price be assuming the total value of the company hasn't changed? Round answer to…arrow_forward
- Toronto Corporation wants to raise $1,210,000 via a rights offering. The company currently has 220,000 shares of common stock outstanding that sells for $32 per share. The issue will allow current stockholders to purchase one additional share for 5 rights. a) What will be the ex-rights stock price, the value of a right, and the appropriate subscription price? b) If 2 rights are needed to purchase on additional share, how does the stockholders’ wealth change? c) Why do you think the company chose a rights issue rather than a general cash offer to raise new capital?arrow_forwardZyra Company is conducting an initial public offering of 2,500,000 shares. Zyra Company already had 4,000,000 issued and outstanding shares, The new IPO shares shall be sold at P3 per share. What is the tax on initial public offering?arrow_forwardJF Corporation issued 2M shares through an IPO reflecting 30% ownership of the firm. The other 70% are owned by original investors. The offer price was $5 and each share jumped to $10 by the end of the trading day reflecting JF Corporation’s true intrinsic value. What is the original shareholders’ wealth if the IPO is fairly valued? (Your answer should be in millions. Round to the nearest hundredth. e.g., 55.16666 must be expressed as 55.17).arrow_forward
- 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. How many new shares must be issued? What will be the ex-rights stock price? 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?arrow_forwardMaxwell Corp. is coming to the market with a new offering of 300,000 shares, at $25 to the public. Maxwell will receive $22 per share. The firm has 1 million shares outstanding and earnings of $6 million. What is the amount of dilution in earnings per share? Multiple Choice $2.00. $1.38. $1.77. No dilution occurs since new money is received by Maxwell.arrow_forwardPlease Solve parts d) and e)arrow_forward
- Toady Inc. has 2 million shares outstanding selling at $70 a share. The Company intends to undertake a rights issue that allows 1 share to be purchased for every 5 shares currently held by shareholders for $40 each. If all shareholders take up their entitlement, which one of the following is true? The stock price will fall to $65. The number of shares outstanding will fall to 1.6 million. The firm will raise $13.33 million. The total value of the firm will equal $124 million.arrow_forwardAnsarrow_forwardVall Street Inc has raised $5 million in an equity financing round last year at a price of $16.667/share. Vall Street identifies a new business opportunity for $10 million and elects to finance this with a new equity raise. Investment banks advise that post raise, Vall Street's equity will be worth $40 million due to all the new business potential. What is the share price of the newly issued shares? $20 $15 $12.667 $100arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
What Are Stock Buybacks and Why Are They Controversial?; Author: TD Ameritrade;https://www.youtube.com/watch?v=2O4bmcliaog;License: Standard youtube license