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Solar Energy Corp. has $4 million in earnings with four million shares outstanding. Investment bankers think the stock can justify a P/E ratio of 21. Assume the underwriting spread is 5 percent. What should the price to the public be? Given: Shares Outstanding 4,000,000 Given: 21 5.0% Earnings 4,000,000 Note: Spread is calculated based upon a Reduction from the Public Price (not a markup on the Firm Price); accordingly, if the Spread % is known, then it is Reduced from the Public Price to determing the Firm Price. EPS Shares Outstanding Earnings 7,000,000 25,000,000 Offer Size 1,100,000 7,000,000 28,000,000 P-7: Underwriting Spread (LO15-2) Tiger Golf Supplies has $25 million in earnings with 7 million shares outstanding. Its investment banker thinks the stock should trade at a P/E ratio of 31. Assume there is an underwriting spread of 7.8 percent. What should the price to the public be? P/E Ratio Public Price 30.00 30.00 30.00 EPS Spread Net to Firm 27.50 28.44 29.15 P/E Ratio Public Price 31 Spread Amt Spread P-8: Underwriting Spread (LO15-2) Assume Sybase Software is thinking about three different size offerings for issuance of additional shares (see below). What is the percentage underwriting spread for each size offer? NOTE: Spread is decreased w/ high volume offerings Given: Net to Firm 7.8% Spread % -Public Price*(1-Spread) Public Price Net to Firm On Ow On Own

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SOLUTION To determine the price to the public we need to calculate the net price price after deducti View the full answer


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Foundations of Financial Management

Foundations of Financial Management

ISBN: 978-1259194078

15th edition

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen

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Posted Date: August 29, 2023 01:57:25
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