Problem:
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.
Required:
Question 1: Calculate the current EPS and P/E ratio.
Question 2: How many shares will have to be sold to net $4 million?
Question 3: 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.
Note: Please provide full description.