1. Using the data in Table 2, calculate the total flotation costs as a percentage of external funds raised. How does this amount compare with published averages for the cost of selling new common stock? (For now, ignore the value of the options.)

2. Assume that Precision Tools stock price one year from now has the following probability distribution

probability	price
0.05	3.50
0.10	7.00
0.35	12.50
0.35	13.90
0.10	19.40
0.05	22.90

a. What is the additional expected dollar benefit to Aberwald, Butler, Van Buren & Company from the option package?

b. Disregarding the time value of money, what would be the total underwriting expense expressed as a percentage of funds raised?

3. Considering that the public would be paying $8.50 per share, should Rodriguez and Fulton be allowed to purchase their shares for $1.00? Should the public be informed that the insiders are paying a lower price, and if so, how?

4. In light of your answer to Question 3, should Aberwald, Butler, Van Buren & Company be allowed to purchase its shares for $1.00 per share?

TABLE 1 Selected Financial Statements Balance Sheet as of December 31, 1992 S 380,000 1,150,000 S 1,845,000 S1639.000 S 1,000,000 Cash S1,050,000 Accounts payable Accounts receivable 2,285,000 Notes payable Current assets Net fixed assets S1,777,000 5,112,000 $ 6,500,000 Accruals Current liabilities Long-term debt Total iabilities Capital stock Retained earnings Total equity Total assets SL612.000 capital Income Statement for the Year Ended December 31, 1992 Sales Cost of goods sold Gross margin General/administrative expenses Lease expense $12,850,000 7251000 S 5,599,000 S 1,769,000 600,000 S 850,000 2,380,000 EBIT Interest expense Earnings before taxes Taxes Net Income 50,00 S 1,530,000 TABLE 2 Financing Proposal Initial distribution of shares 180,000 180,000 150,000 shares at $1.00 shares at $1.00 shares at $8.50 shares at $8.50 180,000 180,000 1,275,000 7.140,000 $8,775,000 Rodriguez Fulton Parks, Van Buren& Co.-840000 Public stockholders 1,350,000 Underwriting costs: 5% of S7, 140.000 Other fees $357000 63,000 $8,355.000 Payment to Saunders Net cash to Precision Tool