JBC Company is going public at at $40 net per share to the company. There are al

Question

JBC Company is going public at at $40 net per share to the company. There are also founding stockholders that are selling part of their shares at the same price. Prior to the offering, the firm had $24 million in 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.

A. What is the immediate dilution based on the new corporate shares that are being offered?

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

C. Should the founding stockholders be pleased with the $40 they receive for their shares?

Explanation / Answer

a) the immidiate dilution effect would be : after issue before dilution effect issue (Millions) in millions shares 8 mill 13 million market value 320 mil 520 million per sharae 40 40 Eps $3 1.85 P/E 13.33 23 after issue before dilution effect issue (Millions) in millions shares 8 mill 13 million market value 320 mil 520 million per sharae 40 40 Eps $3 1.85 P/E 13.33 23
b) Stock price would be after issue before dilution effect issue (Millions) in millions shares 8 mill 13 million market value 320 mil 520 million per sharae 40 40 Eps $3 1.85 P/E 13.33 23 stcok price 40 42.55 c) No..After dilution the share price would be apriciated with $42.55.. after issue before dilution effect issue (Millions) in millions shares 8 mill 13 million market value 320 mil 520 million per sharae 40 40 Eps $3 1.85 P/E 13.33 23

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