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Problem:

Jordan Broadcasting Company is going public at $40 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 $24 million earnings divided over eight 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.

Required:

Question 1: What is the immediate dilution based on the new corporate shares that are being offered?

Question 2: If the stock has a P/E ratio of 23 immediately after the offering, what will the stock price be?

Question 3: Should the founding stockholders be pleased with the $40 they receive for their shares?

Note: Show supporting computations in good form.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91169357

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