The problem requires you to use File C03 on the
The problem requires you to use File C03 on the computer problem spreadsheet. Diction Publishing estimates that it needs \$500,000 to support its expected growth. The underwriting fees charged by the investment banking firm for which you work are 6.5% for such issue sizes. In addition, it is estimated that Diction will incur \$4,900 in other expenses related to the IPO.
a. If your analysis indicates that Diction’s stock can be sold for \$40 per share, how many shares must be issued to net the company the \$500,000 it needs?
b. Suppose that Diction’s investment banker charges 10% rather than 6.5%. Assuming that all other information given earlier is the same, how many shares must Diction issue in this situation to net the company the \$500,000 it needs?
c. Suppose that Diction’s investment banker charges 8.2% rather than 6.5%. Assuming that all other information given earlier is the same, how many shares must Diction issue in this situation to net the company the \$500,000 it needs?
d. Suppose everything is the same as originally presented, except Diction will incur \$5,835 in other expenses rather than \$4,900. In this situation, how many shares must Diction issue to net the company the \$500,000 it needs?
e. Now suppose that Diction decides it only needs \$450,000 to support its growth. In this case, its investment banker charges 7% flotation costs, and Diction will incur only \$3,840 in other expense. How many shares must Diction issue to net the company the \$450,000 it needs?
f. Suppose the scenario presented in part (e) exists, except the price of Diction’s stock is \$32 per share. How many shares must Diction issue to net the company the \$450,000 it needs?

Membership