Problem:
The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D 1 ) at the end of the current year will be $1.44. The growth rate (g) is 8 percent and the discount rate (K e ) is 12 percent.
a. Using Formula 10–9 on page 300 in Chapter 10, what should be the price of the stock to the public?
b. If there is a 6 percent total underwriting spread on the stock, how much will the issuing corporation receive?
c. If the issuing corporation requires a net price of $34.50 (proceeds to the corporation) and there is a 6 percent underwriting spread, what should be the price of the stock to the public? (Round to two places to the right of the decimal point.)