Jordan Broadcasting Company is going public at $40 net per share to the company.
ID: 2701031 • Letter: J
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.
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
Hi, If you like my answer, please rate my answer first and according to my answer...that way only I can earn points. Thanks a. Total no. of shares = 8 + 5 million shares = 13 million b. P/E = 23 New EPS = $(24/13) So Price = $ 23*24/13 = $42.46 c. They should not be, because the expected price > $40, so they will be getting less.
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