04 May WHAT IS THE PERCENTAGE UNDERWRITING SPREAD FOR EACH SIZE OFFER?
financingInvesting Banking & Long-term debt and lease financing Complete the following questions and please show your work.
1.) American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of $10 million in the current year. The company is considering the issuance of 1,700,000
additional shares that will net $30 per share to the corporation. a. What is the immediate dilution potential for this new stock issue? b. Assume that American Health Systems can earn 9 percent
on the proceeds of the stock issue in time to include them in the current years results. Calculate earnings per share. Should the new issue be undertaken based on earnings per share?
2.) Using the information in Problem 3, assume that American Health Systems 1,700,000 additional shares can only be issued at $18 per share. a. Assume that American Health Systems can earn 6
percent on the proceeds. Calculate earnings per share. b. Should the new issue be undertaken based on earnings per share?
3.) Assume Sybase Software is thinking about three different size offerings for issuance of additional shares. Size of Offer Public Prize Net to Corporation
a. 1.1 million $30 $27.50
b. 7.0 million $30 $28.44
c. 28.0 million $30 $29.10
What is the percentage underwriting spread for each size offer?
4.) The Presley Corporation is about to go public. It currently has after tax earnings of $7,200,000 and 2,100,000 shares are owned by the present stockholders
(the Presley family). The new public issue will represent 800,000 new shares. The new shares will be priced to the public at $25 per share, with a 5 percent spread
on the offering price. There will also be $260,000 in out-of-pocket costs to the corporation.
a. Compute the net proceeds to the Presley Corporation.
b. Compute the earnings per share immediately before the stock issue.
c. Compute the earnings per share immediately after the stock issue.
d. Determine what rate of return must be earned on the net proceeds to the corporation so there will not be a dilution in earnings per share during the year of
going public.
e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 5 percent increase in earnings per share during the year of
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