104.

Buchanan Corp. is refunding $9 million worth of 12% debt. The new bonds will be issued for 7%. The corporation's tax rate is 31%. The call premium is 8%. What is the net cost of the call premium?

102.

101.

Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poors 500 Index. Then a .50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a .50 point will be deducted for an inferior comparison.

On this basis, what should the initial P/E be for the firm? (Round your answer to 1 decimal place.)

99.

Firm X needs to net $8,000,000 from the sale of common stock. Its investment banker has informed the firm that the retail price will be $24 per share, and that the firm will receive $21.00 per share. Out-of-pocket costs are $600,000. How many shares must be sold?

98.

Raybac is about to go public. Its present stockholders own 580,000 shares. The new public issue will represent 810,000 shares. The shares will be priced at $55 to the public with a 16% spread. The out-of pocket costs will be $570,000. What are the net proceeds to the firm?

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 $1.54. The growth rate (g) is 9 percent and the discount rate (K_e) is 13 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.)

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.)

c. If the issuing corporation requires a net price of $37.00 (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.)