What is shelf registration? How does it differ from the traditional requirements for security offerings?
In shelf registration, the issuing company publishes a comprehensive statement containing the firm's plans associated with long-term financing.
The major difference between shelf registration and traditional security offerings is the invention of Securities and Exchange Commission.
Traditional offerings are the process of collecting funds from outsiders. It is usually initiated by Initial Public Offering(IPO).
A company issues IPO to raise capital from external sources for the first time.
Shelf registration refers to issuing a comprehensive statement by the issuing company in which it states the firm's long-term plans for the coming two years.
In case of shelf registration, the company must file reports quarterly and annually with the Securities and Exchange Commission.
On the other hand, in traditional security offerings, a company must take approval from the Securities and Exchange Commission every time before offering its securities.
The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders’ claims are also shown.
Machinery and equipment
Building and plant
Liabilities and stockholder’s claims
First lien, secured by machinery and equipment
Senior unsecured debt
Total stockholder’s claims
Total liabilities and stockholder’s claims
d. After the machinery and equipment are sold to partially cover the first lien secured claim, how much will be available from the remaining asset liquidation values to cover unsatisfied secured claims and unsecured debt?
Midland Corporation has a net income of $19 million and 4 million shares outstanding. Its common stock is currently selling for $48 per share. Midland plans to sell common stock to set up a major new production facility with a net cost of $21,120,000. The production facility will not produce a profit for one year, and then it is expected to earn a 13 percent return on the investment. Stanley Morgan and Co., an investment banking firm, plans to sell the issue to the public for $44 per share with a spread of 4 percent.
d. Compute the EPS and the price (P/E stays constant) after the new production facility begins to produce a profit.
American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of $10 million in the current year. The company is considering the issuance of 1,700,000 additional shares that will net $30 per share to the corporation.
a. What is the immediate dilution potential for this new stock issue?
b. Assume that American Health Systems can earn 9 percent on the proceeds of the stock issue in time to include them in the current year’s results. Calculate earnings per share. Should the new issue be undertaken based on earnings per share?
Question: The Bailey Corporation, a manufacturer of medical supplies and equipment, is planning to sell its shares to the general public for the first time. The firm’s investment banker, Robert Merrill and Company, is working with Bailey Corporation in determining a number of items. Information on the Bailey Corporation follows:
For the year 20X1
Sales (all on credit)
Cost of goods sold
Selling and administrative expenses
Net income before taxes
As of December 31, 20X1
Total current assets
Net plant and equipment
Liabilities and stockholders’ equity
Total current liabilities
Common stock (1,800,000 shares at $1 par)
Capital in excess of par
Total stockholder’s equity
Total liabilities and stockholder’s equity
b. Assuming an underwriting spread of 5 percent and out-of-pocket costs of $300,000, what will net proceeds to the corporation be?
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