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Chapter 5: Q9DQ. (page 565)
What is the most likely explanation for the use of preferred stock from a corporate viewpoint?
The preference shares are issued as they help in raising capital without diluting ownership shares and also do not result in debt obligations.
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Kevin鈥檚 Bacon Company Inc. has earnings of \(9 million with 2,100,000 shares outstanding before a public distribution. Seven hundred thousand shares will be included in the sale, of which 400,000 are new corporate shares, and 300,000 are shares currently owned by Ann Fry, the founder and CEO. The 300,000 shares that Ann is selling are referred to as a secondary offering, and all proceeds will go to her.
The net price from the offering will be \)16.50, and the corporate proceeds are expected to produce $1.8 million in corporate earnings.
a. What were the corporation鈥檚 earnings per share before the offering?
b. What are the corporation鈥檚 earnings per share expected to be after the offering?
Tyson Iron Works is about to go public. It currently has after-tax earnings of \(4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at \)25 per share with a 3 percent spread on the offering price. There will also be $280,000 in out-of-pocket costs to the corporation.
c. Compute the earnings per share immediately after the stock issue.
What are electronic communication networks (ECNs)? Generally speaking, are they currently part of the operations of the New York Stock Exchange and the NASDAQ Stock Market?
What are some specific features of bond agreements? (LO16-1)
Louisiana Timber Company currently has 5 million shares of stock outstanding and will report earnings of \(9 million in the current year. The company is considering the issuance of 1 million additional shares that will net \)40 per share to the corporation.
a. What is the immediate dilution potential for this new stock issue?
b. Assume the Louisiana Timber Company can earn 11 percent on the proceeds of the stock issue in time to include it in the current year鈥檚 results. Should the new issue be undertaken based on earnings per share?
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