FOUND.OF FINANCIAL MANAGEMENT-ACCESS
17th Edition
ISBN: 9781260519969
Author: BLOCK
Publisher: MCG
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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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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
FOUND.OF FINANCIAL MANAGEMENT-ACCESS
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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- 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
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