Tyson Iron Works is about to go public. It currently has afhertax eamings of $4,
ID: 2621067 • Letter: T
Question
Tyson Iron Works is about to go public. It currently has afhertax eamings of $4,200,000, and 4,100,000 shares are owned by the present stockholders. The new public issue will regresent 200,c00 new shares. The new shares will be prioed to the public at $25 per share with a 4 percent spread on the offering price. There will sso be $220,000 in ous-af-pocket costs to ne corporason a. Compute the net proceeds to Tyson Iron Works. (Do not round intermediate caliculations and round your answer to the nearest whole dollar) b. Compute the eamings per share immedately before the stock issue (Do not round Intermediate calculations and round your answer to 2 decimal places. c. Compute the eamings per share immediately ather the stock issue. (Do not round Iintermediate caiculations and round your answer to 2 decimal places.) s Determine what rate of returm must be eamed on the net proceeds to the corporation so there will not be a diston in earings per share during the year of going public. (Do not round IntermediateExplanation / Answer
a.$25 price * 96% = $24 net price
$24net price * 200,000new shares$4,800,000proceeds before out-of-pocket costs– 220,000out-of-pocket costs$4,580,000net proceeds
b. Earnings per share before stock issue = 4200000/4100000 = $1.02
c. Earnings per share after stock issue = 4200000/4300000 = $.98
d. There are now 4,300,000 shares outstanding. To maintain earnings of $1.02 per share, total earnings must be $4404878.05. This would imply an increase in earnings of $204878.05.
Incremental earning/net proceeds = 204878.05/4580000 = 4.47%
4.47% must be earned on the net proceeds to produce EPS of $1.02
e. Total Earning = 1.02* 1.1 * 4300000 = $4845365.85
incremental earning = $645365.85
Incremental earning/net proceeds = $645365.85/4580000 = 14.09%
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