The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modem Physics Corporation.
Dividends (D_1) at the end of the current year will be $1.54. The growth rate (g) is 9 percent and the discount rate (K_e) is 13 percent.
a. What should be the price of the stock to the public?
b. If there is a 5 percent total underwriting spread on the stock, how much will the issuing corporation receive?
c. If the issuing corporation requires a net price of $37.00 (proceeds to the corporation) and there is a 5 percent underwriting spread, what should be the price of the stock to the public?