Determine what rate of return must be earned on the proceeds

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Reference no: EM132051227

Question: The Presley Corporation is about to go public. It currently has aftertax earnings of $7,500,000, and 2,600,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 400,000 new shares. The new shares will be priced to the public at $25 per share, with a 5 percent spread on the offering price. There will also be $290,000 in out-of-pocket costs to the corporation.

1) 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.)

Rate of Return = ______%

2) 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.)

Rate of Return = ________%

Reference no: EM132051227

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