Determine what rate of return must be earned

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Question - The Presley Corporation is about to go public. It currently has after tax earnings of $6,900,000, and 3,200,000 shares are owned by the present stockholders (the Presley family). 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 6 percent spread on the offering price. There will also be $270,000 in out-of-pocket costs to the corporation.

Required -

a. Compute the net proceeds to the Presley Corporation.

b. Compute the earnings per share immediately before the stock issue.

c. Compute the earnings per share immediately after the stock issue.

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.

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.

Reference no: EM132961913

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