EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 8, Problem 20PS
Summary Introduction
To determine: While all the other data given in Table 8.1 are remaining the same, and the alpha
Introduction: Information Ratio is used to measure the returns of a portfolio outside the benchmark returns. Sharpe Ratio helps investors in comparing the
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The Schnuz Corporation has a net income of $21 million and 5 million shares outstanding. Its common stock is currently selling for $49 per share. The company plans to sell common stock to set up a new cat food manufacturing plant with a net cost of $23,800,000. The plant will not produce a profit for one year, and then it is expected to earn a 14 percent return on the investment. Chlo Incorporated, an investment banking firm, plans to sell the issue to the public for $45 per share with a spread of 3.5 percent.
a. How many shares of stock must be sold to net $23,800,000? (Note: No out-of-pocket costs should be considered in this problem.)
b. What are the earnings per share and the price-earnings ratio before the issue (based on a stock price of $49)? What will be the price per share immediately after the sale of stock if the P/E stays constant?
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