1.Louisiana Timber Company currently has 2 million shares of stock outstanding and will report earnings of $6.79 million in the current year. The company is considering the issuance of 1 million additional shares that will net $39 per share to the corporation.
a. What is the immediate dilution potential for this new stock issue? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Dilution Per Share _________?
b-1. Assume the Louisiana Timber Company can earn 12.60 percent on the proceeds of the stock issue in time to include it in the current year's results. Calculate earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Earnings Per Share ________?
2.Jordan Broadcasting Company is going public at $44 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 $27 million in earnings divided over 9 million shares. The public offering will be for 5 million shares; 4 million will be new corporate shares and 1 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? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Dilution Per Share _______?
b. If the stock has a P/E of 25 immediately after the offering, what will the stock price be? (Do not round intermediate calculations and round your answer to 2 decimal places.) Stock Price _________?
3.Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue. The car rental industry generally trades at a 15 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index. Assume that index currently has a P/E ratio of 20. The firm can be compared to the car rental industry as follows:
Richmond
Car Rental Industry
Growth rate in earnings per share
16%
10%
Consistency of performance
Increased earnings
4 out of 5 years
Increased earnings
3 out of 5 years
Debt to total assets
32%
40%
Turnover of product
Slightly below average
Average
Quality of management
High
Average
Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poor's 500 Index. Then a .50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a .50 point will be deducted for an inferior comparison.
On this basis, what should the initial P/E be for the firm? (Round your answer to 1 decimal place.)
Initial P/E Ratio ___________?
4.The Pioneer Petroleum Corporation has a bond outstanding with an $60 annual interest payment, a market price of $850, and a maturity date in five years. Assume the par value of the bond is $1,000.
Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
a. Coupon rate _________________%
b. Current yield _________________%
c. Approx. yield to maturity ________%
d. Exact yield to maturity __________%
5.From an investors' point of view, when is the best time to own a floating rate bond?
When the bond sells for a discount.
When interest rates are expected to fall.
When interest rates are expected to rise.
Any time, the interest rate fluctuations don't affect the floating rate bond.
An asset fitting into the 10-year MACRS category was purchased 2 years ago for $135,000. The book value of this asset is now (Do not round intermediate calculations.)
$92,000
$97,200
$101,800
$111,400