Flyrite Company Currently Has Net Income of $9 Million and 3

question 105

Essay

Flyrite Company currently has net income of $9 million and 3 million common shares outstanding, which sell for $33/share. Flyrite has decided to issue new stock to raise $4,000,000 to expand its operations. Flyrite's investment banker will sell the stock for $29 with a spread of 7%. There will be a $60,000 additional registration cost.
a) Calculate the current EPS and P/E ratio.
b) How many shares will have to be sold to net $4 million?
c) Calculate the new EPS and stock price immediately after the sale if the P/E ratio remains constant. You may ignore the effect of the costs of the new issue on EPS, assuming instead that they have been accrued against earnings in performing this before-and-after analysis.

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Definitions:

Sample Size

Refers to the number of individuals or observations included in a sample, which represents a subset of the larger population.

N

Represents the sample size or the number of observations in a dataset.

Σ Symbol

A mathematical notation that represents the sum of a set of terms, known as the summation symbol.

Sum Of Values

The total obtained by adding together a sequence of numbers, quantities, or items.