EBK BUSN
10th Edition
ISBN: 8220103648738
Author: Kelly
Publisher: YUZU
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Question
Chapter 6, Problem 5LO
Summary Introduction
To discuss: The reason for the limited liability firms to become more popular type of business ownership.
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(Do not use Excel) I like to see the work of how to solve the problem.
The investment banking firm of Doots Incorporated. will use a dividend valuation model to appraise the shares of the Straight Fence Corporation. Dividends (D1) at the end of the current year will be $2.70. The growth rate (g) is 7 percent and the discount rate (Ke) is 13 percent.
a. What should be the price of the stock to the public?
b. If there is a 8 percent total underwriting spread on the stock, how much will the issuing corporation receive?
c. If the issuing corporation requires a net price of $38.30 (proceeds to the corporation) and there is a 7 percent underwriting spread, what should be the price of the stock to the public? (Round to two places to the right of the decimal point.)
California Homes Associates is about to go public. The investment banking firm of Dillon and Associates is attempting to price the issue. The building industry generally trades at a 25 percent discount below the P/E ratio on the Standard & Poor’s 500 Stock Index. Assume that index currently has a P/E ratio of 30. The firm can be compared to the building industry as follows:
CA Homes Building Industry Growth rate in earnings per share ............... 16% 13% Consistency of performance ...................... Increased earnings Increased earnings
3 out of 5 years 2 out of 5 years
Debt to total assets.................................... 64%…
Chapter 6 Solutions
EBK BUSN
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