Jordan Broadcasting Company is going public at $40 net per share to the company.

Question

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 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.

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 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.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

EPS before Stock Issue = 24000000/8000000 = 3 per share

EPS after Stock Issue = 24000000/11000000 = 2.18 per share

Dilution = 3 - 2.18 = .82 per share.

Part B:

=2.18*23 = 50.14 would be the stock price.

Thanks.

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