What is the fraction of ownership

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An investment bank is conducting an equity issuance to raise equity capital for a manufacturing ?rm to ?nance its $126 million new project that has a present value of $188 million. The ?rm has a debt of $52.3 million in place. The average annual earnings of the ?rm has been $12.8 million, and EBITDA $21 million. PE and WEBITDA ratios of comparable ?rms without debt are 14 and 12.3, respectively.

a) If the issuing ?rm requires increasing its existing shaleholders' wealth by a minimum of 25% with the issuance and investment, what maximum issuance costs (ICm) can the investment bank charge?

b) If the investment bank charges the It:max calculated above, what is the fraction of ownership does the ?rm need to sell to new investors?

c) If the target share price after the issuance is $21, how many shares need to be sold to new investors?

Reference no: EM133073140

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