answers-odd-problems19

answers-odd-problems19 - Chapter 19 Initial Public...

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Initial Public Offerings, Investment Banking, and Financial Restructuring SOLUTIONS TO END-OF-CHAPTER PROBLEMS 19-1 a. $5 per share Gross proceeds = (3,000,000)($5) = $15,000,000. Net profit = $15,000,000 - $14,000,000 - $300,000 = $700,000. b. $6 per share Gross proceeds = (3,000,000)($6) = $18,000,000. Net profit = $18,000,000 - $14,000,000 - $300,000 = $3,700,000. c. $4 per share Gross proceeds = (3,000,000)($4) = $12,000,000. Net profit = $12,000,000 - $14,000,000 - $300,000 = -$2,300,000. 19-3 a. If 100 shares are outstanding, then we have the following for Edelman: 1999 2004 Earnings per share $8,160 $12,000 Dividends per share 4,200 6,000 Book value per share 90,000 b. Using the following two equations, the growth rate for EPS and DPS can be determined. (1 + g EPS ) 5 EPS 99 = EPS 04 . (1 + g DPS ) 5 DPS 99 = DPS 04 . g EPS g DPS Kennedy 8.4% 8.4% Strasburg 6.4 6.4 Edelman 8.0 7.4 c. Based on the figures in Part a, it is obvious that Edelman’s stock would not sell in the range of $25 to $100 per share. The small number of shares outstanding has greatly inflated EPS, DPS, and book value per share. Should Edelman attempt to sell its stock based on the EPS and DPS above, it would have difficulty finding investors at the economically justified price. Mini Case:
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This note was uploaded on 04/12/2011 for the course ECON 101 taught by Professor Buddin during the Spring '08 term at UCLA.

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answers-odd-problems19 - Chapter 19 Initial Public...

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