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Crestwood Ltd., a computer hardware company with sales of $28 million and a net profit margin of 6.5% is considering an expansion. Management estimates the expansion would result in sales growth of 10% yet would require raising $5 million in equity. Crestwood's share price closed yesterday at $15.25, and its underwriter believes it could sell the equity offering at $14.75. The underwriter's commission is 6.0%. There are currently 3.5 million shares outstanding.
Show all work.
-What are the current earnings per share (EPS)?
-What would the EPS be after the equity issue? Assume the expansion occurs after the share issue.
-Was there any EPS dilution? Explain why or why not.
-The underwriters suggested doing the deal on a "best efforts" basis. Explain what this means, and how this differs from a bought deal.
What limitations of the licensing strategy became apparent over time? Should Burberry have expected these drawbacks to arise?
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