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Capital Generation Alternatives

If the actual IPO price then was higher, the company would be in an even stronger position financially. A prudent P/E for the IPO, thus, would approximate 75 percent of the industry average, or 8.6:1. Based on 1987 earning per share (EPS) of $7.87 by Johnstown, the average share price for an IPO would be $68. As fees associated with an IPO by Johnstown Corporation approximate eight-percent, the generation of $7.5 million in new capital would require an IPO approximating $8.2 million. At an average share price of $68, an $8.2 million IPO would equate to an issue of 120,600 shares. This number of shares would cause a dilution approximating 34 percent of the existing 233,000 shares outstanding (but not publicly traded). The fees for the IPO would approximate $700,000.

While the IPO as described above would substantially dilute the proportional value of the existing share holders in the firm, the market value of the existing shares would increase by a multiplier of at least seven. The question in this context, thus, is whether the substantially increased market value of the existing investment offsets the loss of control represented by the IPO.

Corporate bond issue. The corporate bond issue is envisioned as a private placement of 10-year notes. Fees associated with the private placement of the bonds would be a nominal $52,


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Capital Generation Alternatives. (1969, December 31). In Retrieved 23:28, October 24, 2014, from
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