Question
Tyson Iron Works is about to go public. It currently has aftertax earnings of $5,500,000, and 3,700,000 shares are owned by the present stockholders. The
Tyson Iron Works is about to go public. It currently has aftertax earnings of $5,500,000, and 3,700,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at $15 per share with a 2 percent spread on the offering price. There will also be $250,000 in out-of-pocket costs to the corporation.
a. Compute the net proceeds to Tyson Iron Works. (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
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b. Compute the earnings per share immediately before the stock issue. (Do not round intermediate calculations and round your answer to 2 decimal places.)
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c. Compute the earnings per share immediately after the stock issue. (Do not round intermediate calculations and round your answer to 2 decimal places.)
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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.)
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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.)
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