The Anton Corporation, a manufacturer of radar control equipment, is planning to sell its shares to the general public for the first time. The firm’s investment banker is working with the Anton Corporation in determining a number of items. Information on the Anton Corporation follows:

Anton Corporation

Income statement

For the year 200x

Sales (all on credit) .....................................$22,428,000

Costs of goods sold ........... 16,228,000

Gross profit ................ 6,200,000

Selling and administrative expenses ..... 2,659,400

Operating profit ............. 3,540,600

Interest expense ............ 370,600

Net income before taxes ............ 3,170,000

Taxes .................. 1,442,000

Net income ............... $1,728,000

Balance Sheet

As of December 31, 200x

Assets

Cash .................. $150,000

Marketable securities ............. 100,000

Accounts receivable ............2,000,000

Inventory ................3,800,000

Total current assets .............6,050,000

Net plant and equipment ..........6,750,000

Total assets ..............12,800,000

Liabilities and stockholders’ equity

Accounts payable .............$1,000,000

Notes payable .............. 1,200,000

Total current liabilities .......... 2,200,000

Long term liabilities ........... 2,380,000

Total liabilities .............4,580,000

Common stock (1,200,000 shares at $1 par) ...1,200,000

Capital paid in excess of par .........2,800,000

Retained earnings .............4,220,000

Total stockholders’ equity .........8,220,000

Total liabilities and stockholders’ equity ..12,800,000

The new public offering will be at 10 times the earnings per share

a. Assume that 500,000 new corporate shares will be issued to the general public. What will earnings per share be immediately after the public offering? (Round to two places to the right of the decimal point.) Based on the price earnings ratio of 10, what will the initial price of the stock be? Use earnings per share after the distribution in the calculation.

b. Assuming an underwriting spread of 7 percent and out of pocket cost of $150,000, what will net proceeds to the corporation be?

c. What return must the corporation earn on the net proceeds to equal the earnings per share before the offering? How does this compare with current return on the total assets on the balance sheet?

d. Now assume that, of the initial 500,000 share distribution, 250,000 shares belong to current stockholders and 250,000 are new corporate shares, and these will be added to the 1,200,000 corporate shares currently outstanding. What will earnings per share be immediately after public offering? What will the initial market price of the stock be? Assume a price earnings ratio of 10 and use earnings per share after the distribution in the calculation

e. Assuming an underwriting spread of 7 percent and out of pocket costs of $150,000 what will net proceeds to the corporate be?

f. What return must the corporation now earn on the net proceeds to equal earnings per share before the offering? How does this compare with current return on the total assets on the balance sheet?