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

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Chapter 19 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: 19 - 1

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d. Edelman’s management would probably be wise to split the stock so that EPS, DPS, and book value were closer to those of Kennedy and Strasburg. This would bring the
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answers-odd-problems19 - Chapter 19 Initial Public...

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