Question

Tyson Iron Works is about to go public. It currently has aftertax earnings of $4,700,000, and 4,400,000 shares are owned by the present stockholders. The new public issue will represent 600,000 new shares. The new shares will be priced to the public at $30 per share with a 4 percent spread on the offering price. There will also be $270,000 in out-of-pocket costs to the corporation. a. Compute the net proceeds to Tyson Iron Works. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Net proceeds b. Compute the earnings per share immediately before the stock issue. (Do not round intermediate calculations and round your answer to 2 decimal places.) Earnings per share c. Compute the earnings per share immediately after the stock issue. (Do not round intermediate calculations and round your answer to 2 decimal places.) Earnings per share 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. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of returnſ % 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. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of return

Answer 1

Ans Analysis of Tyson Iron Works Current Earnings After tux (EAT) = $4700,000 No.of spuity shores o 44,00,000 New (Proposed Issue) No. of shores 6,00,oos. Price to public $30 Spread = 4% on offering Price Out of Pocket expens $270,000 (a.) Net Proceeds: Gross Proceeds (6,00000 x 30) Less: Spread [ 44 67 18 000 000] Proceeds After spread Loss Out A Rocket Eupense Ner Proveeds 18000,000 720, ono 1,72,80,000 270, oro 120.10,000 (6) EPS & fornings After Tax & No. of shores 47,000,000 4400,00 - $1.068 (approx) c) EPS = 020 $0.94 EAT 4700,000 No. of shores 50,00,000* * 50,00,000 including New issued 6,00,000 (d) Incremental Earning Required for No dilution in fornings per shore = 1.068 - 0.94 $0.128 pershore Totel Louvings Cincremental) - 50,00,000 X (Mayorem 0128 - $ 640,000 Rate of Return incremental Ernings loo & 640,050 x 100 = 3,7624% Net Proceed's 2010,000