Elie's Concrete Co. (ECC) currently has sales of $30 million and a net profit margin of 5%. Management is contemplating expansion, which would lead to sales growth of 8% but would also require raising $4 million through an equity issue. ECC's shares currently trade at $14.75, and its underwriter believes that the market would be receptive to the offering at $14. The underwriter will charge 5.5%. If ECC currently has 3 million shares outstanding, calculate EPS before share issuance and after (assume that sales expansion occurs after share issuance). What if any dilution is there to EPS? What must the growth in earnings be for there to be no dilution in EPS?

14-6. Harbour Resources (HR) is contemplating an IPO. The company's investment banker has provided the following information. The current risk-free rate in the market is 3%, while the market risk premium is 5%. Publicly traded companies in the same industry have betas ranging from 1.9 to 2.3. HR has paid dividends over the past 8 years and on average they have grown 4% per year. The most recent annual dividend was $3.80. An IPO will provide HR with additional investment capital to expand, so a modest increase in dividend growth to 5% is assumed. Based on the above betas, what might be a suitable range of prices for HR's stock? What conditions would suggest a price at the high or low end of the price range?