Jordan Broadcasting Company is going public at $50 net per share to the company. There also are founding stockholders

Question

Jordan Broadcasting Company is going public at $50 net per share to the company. There also are founding stockholders that are selling part of their shares at the same price. Prior to the offering, the firm had $26 million in earnings divided over 11 million shares. The public offering will be for 5 million shares; 3 million will be new corporate shares and 2 million will be shares currently owned by the founding stockholders. 1. What is the immediate dilution based on the new corporate shares that are being offered? (Do not round intermediate calculations and round your answer to 2 decimal places.) (Answer 1) 2. If the stock has a P/E of 30 immediately after the offering, what will the stock price be? (Do not round intermediate calculations and round your answer to 2 decimal places.) (Answer 2) 3. Should the founding stockholders be pleased with the $50 they received for their shares? (Answer 3) Answer 1: 1.25 +/- 01 per share Answer 1:.50 +/-.01 per share Answer 2: $55.71 +/-1%

Help In Homework · Accepted Answer

1 IPO price 50 net per share prior to offering Total earnings 26 m no of shares 11 m earning per share ($) 2.3636 =26/11 In public offering no of new corporate share 3 m No of founder shares sold 2 m Total 5 m Total no shares after offering (m) 14 =11+3 Dilution coefficient 1.27 =14/11 Answer 1 1.25+/- 0.01 2 P/E immediately after offering 30 Earning per share ($) 1.8571 =26/14 Price per share 55.71 =30*1.8751 Answer 2 $55.71+/-1% 3 Founder received net per share 50 per share Price of remaining share 55.71 per share Founder received $50 per share whereas remaining shareholders share price was $55.71 per share.So, founders not pleased Answer 3 No

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Jordan Broadcasting Company is going public at $50 net per share to the company

Expert Solution

Archived Solution

1	IPO price	50	net per share
	prior to offering
	Total earnings	26	m
	no of shares	11	m
	earning per share ($)	2.3636	=26/11

	In public offering
	no of new corporate share	3	m
	No of founder shares sold	2	m
	Total	5	m

	Total no shares after offering (m)	14	=11+3
	Dilution coefficient	1.27	=14/11
	Answer 1	1.25+/- 0.01

2	P/E immediately after offering	30
	Earning per share ($)	1.8571	=26/14
	Price per share	55.71	=30*1.8751
	Answer 2	$55.71+/-1%

3	Founder received net per share	50	per share
	Price of remaining share	55.71	per share
	Founder received $50 per share whereas remaining shareholders share price was $55.71 per share.So, founders not pleased
	Answer 3	No