#1: ** Please answer Parts B and C, Part A is included for information for Parts B and C**

In 2008, Mr. Ronald Spahr started his own cosmetics business. The company has been successful in this industry for the past 5 years (Now it is 2013). Mr. Spahr has decided to go public to finance his companys growth. The company is going to be incorporated and part of its equity is going to be sold to the public. The owner decided to keep 60% of the firms voting rights. The company is going to issue 20 million shares in total.

A. Chase bank is the head of the IPO investment banking syndicate that is helping Mr. Spahr to take his company to public. At the initial public offering time, January 2014, the syndicate were trying to estimate a fair value (fair price) to Spahr cosmetics share. Previous year earnings per share was $2. The price earnings ratio of My-Way cosmetics Inc., the main competitor of Spahr cosmetics, is 10. What would be a fair share price of Spahr cosmetics?

a) $5

b) $20

c) $100

d) $2

B. In 2015, After paying all registration fees to the exchange, and the costs of the IPO, Spahr cosmetics management thought that additional funding is needed. Spahr suggested issuing corporate bonds to mature in 15 years. The company issued the bonds at a par value of a $1000, the total size of the bond issue was $10 million. If Spahr cosmetics bond pays coupon semiannually, and the YTM at issuance is 5%. What is the amount of each coupon payment?

1. $ 25
2. $ 50
3. $ 75
4. $ 12.5

C. shortly after the Spahr cosmetics went public, the management announced the following dividends policy. Dividends at year 1= $ 1. Dividends at year 2 = $ 1.5. Dividends at year 3 = $ 1.9. and after that the company is expected to increase its annual dividends by 3% indefinitely. What is the stock price estimate at that time if the required rate of return was 7%?

1. $ 41.12
2. $ 43.73
3. $ 38.77
4. $ 23.73