1. What is the likely initial public offering (IPO) price for the company's stock? As a source of additional information, what is the price of the bonds mentioned in Exhibit 3? Please make sure to explain the interrelationship among the bond's face value, coupon rate, current yield and price. (For the stock price calculation, assume relevant industry data will also apply to AEC.) Assume that the investor's required return on a stock of this type can be derived from the capital market date in Exhibit 3.

Exhibit 1 Atlantic Electrical Contractors Balance Sheet December 31, 2004 ($000) Current Assets $600 Fixed Assets 4,600 Total Assets $5,200 Current Liabilities $550 Mortgage Loans 460 Common Stock ($2 par value) 550 Retained Earnings 3,640 Total Liabilities and Equity $5,200 Exhibit 2 Atlantic Electrical Contractors Sales and Earnings History 1 Year Sales Net Income After-tax 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $3,612,000 3,812,000 3,920,000 3,980,000 4,100,000 4,324,000 5,188,000 6,001,000 6,800,000 7,500,000 7,800,000 $118,000 133,000 137,000 143,000 155,000 164,000 197,000 228,000 273,000 300,000 312,000 Exhibit 3 Atlantic Electrical Contractors Composite Data (2004) 2 Electrical Contractors Various Sales Levels Southeastern U.S. Five-Year Averages 20 - 32 9% 8% Total Debt as a Percentage of Total Assets Compound Growth in Sales Compound Growth in net income Dividend Payout Range ROE Average Earnings per share . . 15% - 30% 15% $3.00 Exhibit 1 Atlantic Electrical Contractors Balance Sheet December 31, 2004 ($000) Current Assets $600 Fixed Assets 4,600 Total Assets $5,200 Current Liabilities $550 Mortgage Loans 460 Common Stock ($2 par value) 550 Retained Earnings 3,640 Total Liabilities and Equity $5,200 Exhibit 2 Atlantic Electrical Contractors Sales and Earnings History 1 Year Sales Net Income After-tax 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $3,612,000 3,812,000 3,920,000 3,980,000 4,100,000 4,324,000 5,188,000 6,001,000 6,800,000 7,500,000 7,800,000 $118,000 133,000 137,000 143,000 155,000 164,000 197,000 228,000 273,000 300,000 312,000 Exhibit 3 Atlantic Electrical Contractors Composite Data (2004) 2 Electrical Contractors Various Sales Levels Southeastern U.S. Five-Year Averages 20 - 32 9% 8% Total Debt as a Percentage of Total Assets Compound Growth in Sales Compound Growth in net income Dividend Payout Range ROE Average Earnings per share . . 15% - 30% 15% $3.00