1. The Wrigley Corporation needs to raise $32 million. The investment banking firm of Tinkers, Evers & Chance will handle the transaction.

a. If stock is utilized, 2,000,000 shares will be sold to the public at $17.75 per share. The corporation will receive a net price of $16.00 per share. What is the percentage underwriting spread per share? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Underwriting spread per share = %

b. If bonds are utilized, slightly over 32,000 bonds will be sold to the public at $1,005 per bond. The corporation will receive a net price of $1,000 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Underwriting spread per bond = %

c-1. Which alternative has the larger percentage of spread?

	Stock
	Bond

c-2. Is this the normal relationship between the two types of issues?

	Yes
	No

2. The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D₁) at the end of the current year will be $1.70. The growth rate (g) is 7 percent and the discount rate (K_e) is 12 percent.

a. What should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.) Price of the stock =

b. If there is a 5 percent total underwriting spread on the stock, how much will the issuing corporation receive? (Do not round intermediate calculations and round your answer to 2 decimal places.) Net price to the corperation =

c. If the issuing corporation requires a net price of $32.50 (proceeds to the corporation) and there is a 5 percent underwriting spread, what should be the price of the stock to the public? (Do not round intermediate calculations and round your answer to 2 decimal places.) Necessary public price =