please help!
Chapter 15 Investment Banking COMPREHENSIVE PROBLEM The Bailey Corporation, a manufacturer of medical supplies and equipment, is plan- Bailey ning to sell its shares to the general public for the first time. The firm's investment (Impa banker, Robert Merrill and Company, is working with Bailey Corporation in determin- public ing a number of items. Information on the Bailey Corporation follows: (LOL BAILEY CORPORATION Income Statement For the Year 20X1 Sales (ail on credit) Cost of goods sold Gross profit Selling and administrative expenses Operating profit Interest expense Net income before taxes Taxes $42680.000 32.240.000 $ 10.440.000 4,558.000 $5,882.000 600.000 5282.000 211201000 $ 3.162.000 Net.com Part 5 Long-Term Financing a. c. Assume that 800,000 new corporate shares will be issued to the general public. What will earnings per share be immediately after the public offering? (Round to two places to the right of the decimal point.) Based on the price-earnings ratio of 12, what will the initial price of the stock be? Use earnings per share after the distribution in the calculation. b. Assuming an underwriting spread of 5 percent and out-of-pocket costs of $300,000, what will net proceeds to the corporation be? What return must the corporation earn on the net proceeds to equal the earnings per share before the offering? How does this compare with current return on the total assets on the balance sheet? d. Now assume that, of the initial 800,000 share distribution, 400.000 belong to current stockholders and 400.000 are new shares, and the latter will be added to the 1,800,000 shares currently outstanding. What will earnings per share be immediately after the public offering? What will the initial market price of the stock be? Assume a price-earnings ratio of 12. and use earnings per share after the distribution in the calculation, e. Assuming an underwriting spread of 5 percent and out-of-pocket costs of $300,000, what will net proceeds to the corporation be? f. What return must the corporation now earn on the net proceeds to equal earnings per share before the offering? How does this compare with current return on the total assets on the balance sheet? BAILEY CORPORATION Balance Sheet As of December 31, 20X1 $ 250.000 130,000 6,000,000 8,300,000 $ 14,680,000 13,970,000 $28,650,000 Assets Current assets: Cash Marketable securities Accounts receivable Inventory Total current assets Net plant and equipment Total assets Llabilities and Stockholders' Equity Current liabilities: Accounts payable Notes payable Total current liabilities Long-term liabilities Total liabilities Stockholders' equity: Common stock (1.800.000 shares at $1 par) Capital in excess of par Retained earnings Total stockholders' equity Total liabilities and stockholders equity $ 3,800,000 3,550,000 $ 7.350.000 5.620,000 $ 12.970.000 $ 1.800.000 6,300,000 7580,000 $ 15.680.000 $28.650.000
