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Ownership of the original shareholders

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Reference no: EM132444764

Consider the following:

SS has 1M shares trading at $100 per share when it announces an underwritten SEO for $10M to invest in a project with an NPV of $1M.  Please explain/show work on each answer.

  1. What should be the fair market value of a share assuming that the market priced the shares correctly before the announcement, the firm sells equity priced at that price, and there is no investment banker spread?
  2. Is there a dilution in the wealth of the original shareholders? If so, how much?
  3. Is there dilution in ownership of the original shareholders?
  4. What should be the new share price if the market now infers it over priced the shares by 3%, the firms sells shares priced at an additional 2% discount, and the investment bank's spread is 3%?
  5. Have the original shareholders suffered any dilution in their wealth? If so, how much?

Reference no: EM132444764

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