Solution-Perspective of the existing shareholders

Perspective of the existing shareholders

Reference no: EM132715446

No Bicycle For Old Men Inc. appeals to middle-aged men in their desire to stay active and wear tight leggings on Sundays. The company has no debt and its19.7 million shares outstanding are trading for $13.99. The cost of equity is 7.00% and there are no taxes in this world.

What is the equilibrium EBIT that justifies the current share price? $ million

The firm wants to permanently elevate its EBIT to $23.9 million per year by investing a lump sum in a new product line that promises an recurring annual return of 12.40%. (Ignore any effects from depreciation or ongoing capital expenditures)

What amount of capital needs to be invested to achieve this? million

An SEO will be conducted to raise the necessary funds. Underwriting fees are 5.0% of the gross proceeds and additional administrative fees amount to $1.3million. The SEO offer price is $12.73 per share.

How many shares (in million) will the firm have to place during the SEO? million shares

What is the post-SEO share price if the investment goes according to plan?

Was this expansion in production beneficial from the perspective of the existing shareholders?

Reference no: EM132715446

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Perspective of the existing shareholders

Reference no: EM132715446

Reference no: EM132715446

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