Problem 15-16 (Algo) Dividend valuation model for new public issue [LO15-1]

The investment banking firm of Einstein & Company will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D1)1 at the end of the current year will be $1.75. The growth rate (g) is 13 percent and the discount rate (Ke)e is 15 percent.

1. What should be the price of the stock to the public?

Note: Do not round intermediate calculations and round your answer to 2 decimal places.

2. If there is a 4 percent total underwriting spread on the stock, how much will the issuing corporation receive?

Note: Do not round intermediate calculations and round your answer to 2 decimal places.

3. If the issuing corporation requires a net price of $86.00 (proceeds to the corporation) and there is a 4 percent underwriting spread, what should be the price of the stock to the public?

Note: Do not round intermediate calculations and round your answer to 2 decimal places.