Question

Jordan Broadcasting Company is going public at $50 net per share to the company. There also are founding stockholders that are selling part of their shares at the same price. Prior to the offering, the firm had $26 million in earnings divided over 11 million shares. The public offering will be for five million shares; three million will be new corporate shares and two million will be shares currently owned by the founding stockholders.a.)What is the immediate dilution based on the new corporate shares that are being offered?Round your answer to 2 decimal places. Omit the "$" sign in your response.b.)If the stock has a P/E of 30 immediately after the offering, what will the stock price be?(Round your answer to 2 decimal places. Omit the "$" sign in your response.c.)Should the founding stockholders be pleased with the $50 they received for their shares?:A) YesB) No

Answer 1

a) Immediate dilution based on the new corporate shares that are being offered:

The prompt dilution of the EPS dependent on the issue of new offers would be the EPS registered after the issue. The post issue EPS or dilution EPS will be figured by isolating the income profit with the quantity of offers remarkable on the remainder of day of the budgetary year.

Compute the EPS and diluted EPS as below:

EPS = Earning + Number of shares outstanding

EPS = $26 million + 11 million shares

EPS = $2.36

Diluted EPS = Earnings + Number of shares outstanding

Diluted EPS = $26 million- (11 million + 3 million)

Diluted EPS = $1.86

b) Compute the stock price:

The stock cost of a Share will be figured by duplicating the EPS with the PE multiple. In the given information, the PE multiple is 30 and the new EPS is $1.86. Subsequently, the stock cost would be:

Stock price = EPS x PE

Stock price =$1.86 x 30

Stock price = $55.80

(c) The establishing investors will likely not be satisfied on the grounds that they get a cost of $50 and estimation of stock following contribution is $55.80. They wish that offering value at first would be more.