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Lancer Inc.

1) Lancer Inc. needs to raise $14 million. Assuming that the market price of the firm's stock is $95, and the flotation costs are 10 percent of the market price, how many shares would have to be issued? What is the dollar size of the issue?

2)You have developed the following analytical income statement for your corporation. It represents the most recent year's operations, which ended yesterday.

Sales $30,000,000
Variable Costs 13,500,000
Revenue before fixed costs 16,500,000
Fixed Costs 8,000,000
EBIT 8,500,000
Interest expense 1,000,000
Earnings before taxes 7,500,000
Taxes at 50% 3,750,000
Net income $3,750,000

If sales should increase by 25 percent, by what percent would earnings before taxes ( and net income ) increase?

Solution Preview

1) Lancer Inc. needs to raise $14 million. Assuming that the market price of the firm's stock is $95, and the flotation costs are 10 percent of the market price, how many shares would have to be issued? What is the dollar size of the issue?

Actual amount received per share = 95(1 - 0.10) = $85.50
Total shares to be issued = 14,000,000/85.50 = 163,743 shares

2) You have developed the following analytical income statement for your corporation. It represents the most recent year's ...

Solution Summary

This solution is comprised of a detailed explanation to answer how many shares would have to be issued, what is the dollar size of the issue, and by what percent would earnings before taxes (and net income) increase.

$2.19