Question

P15-8 Price Dilution [LO3]

Left Turn, Inc., has 119,000 shares of stock outstanding. Each share is worth $110, so the company's market value of equity is $13,090,000.

Required:

(a)	Suppose the firm issues 17,000 new shares at the price of $110, what will the effect be of this offering price on the existing price per share? (Do not round your intermediate calculations.)

     (Click to select)44.5066.00-0.250.250.00

(b)	Suppose the firm issues 17,000 new shares at the price of $94, what will the effect be of this offering price on the existing price per share? (Do not round your intermediate calculations.)

    (Click to select)-1.9062.80-2.0040.80-2.10

(c)	Suppose the firm issues 17,000 new shares at the price of $71, what will the effect be of this offering price on the existing price per share? (Do not round your intermediate calculations.)

     (Click to select)36.20-4.63-4.8858.20-5.12

Answer 1

a)	The new price will be = (13090000+17000*110)/136000 =	$      110.00
	Effect on existing price = 110-110 =	$               -
b)	New price = (13090000+17000*94)/136000 =	$      108.00
	Effect on existing price = 108-110 =	$         -2.00
c)	New price = (13090000+17000*71)/136000 =	$      105.12
	Effect on existing price = 105.12-110 =	$         -4.88