Question

P15-8 Price Dilution [LO3] Left Turn, Inc., has 119,000 shares of stock outstanding. Each share is...

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

Homework Answers

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
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