Question 1

Preston Corporation has a bond outstanding with an annual interest payment of $90, a market price of $1 ,280, and a maturity date in 7 years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Coupon rate Current yield . Exact yield to maturity The Presley Corporation is about to go public. It currently has aftertax earnings of $7,600,000, and 2,100,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 600,000 new shares. The new shares will be priced to the public at $20 per share, with a 6 percent spread on the offering price. There will also be $280,000 in out- of-pocket costs to the corporation. a. Compute the net proceeds to the Presley Corporation. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) d. Determine what rate of return must be earned on the net proceeds to the corporation so there will not be a dilution in earnings per share during the year of going public. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) o e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 5 percent increase in earnings per share during the year of going public. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) u