Question

Left Turn, Inc., has 128,000 shares of stock outstanding. Each share is worth $90, so the company's market value of equity is $11,520,000.

Required:

(a)	Suppose the firm issues 16,000 new shares at the price of $90, what will the effect be of this offering price on the existing price per share? (Do not round your intermediate calculations.)

      (Click to select) -0.25, 0.25, 0.00, 72.00, 54.50  
  

(b)	Suppose the firm issues 16,000 new shares at the price of $78, what will the effect be of this offering price on the existing price per share? (Do not round your intermediate calculations.)

     (Click to select) -1.33, 69.60, -1.40, 51.60, -1.27

(c)	Suppose the firm issues 16,000 new shares at the price of $62, what will the effect be of this offering price on the existing price per share? (Do not round your intermediate calculations.)

      (Click to select) -2.96, 48.40, -3.27, 66.40, -3.11

Answer 1

Existing outstanding shares	128000
Proposed New issue of shares	16000
New outstanding shares	144000
	Case a	Case b	Case c
Existing market value	$        11,520,000	$        11,520,000	$        11,520,000
Add: New issue	$          1,440,000	$          1,248,000	$              992,000
	(16000*90)	(16000*78)	(16000*62)
New market value	$        12,960,000	$        12,768,000	$        12,512,000
÷ New O/S shares	÷ 144000	÷ 144000	÷ 144000
New market price per share	$                   90.00	$                   88.67	$                   86.89
OLD price per share	90	90	90
Change in price	$                          -	$                   (1.33)	$                   (3.11)
	Option C	Option A	Option E