Case 6, Sun Coast Savings Bank

1751 Words Dec 17th, 2009 8 Pages
Case 6
Going Public Sun Coast Savings Bank

Question 3

a) Calculating the Net worth-to-Asset ratios for the peer-group

Figure 3.1: Net worth-to-Asset ratios
| |Net Worth |Assets |NW/A |
|Virginia Federal |950 |14000 |0.068 |
|Southland Financial |2020 |35000 |0.058 |
|Texas Federal |1130 |24000 |0.047 |
|Great Southern Financial |1400 |27000 |0.052 |

b) Calculating the compound growth
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Multiplying Sun Coast’s book value of equity with 0.8 gives a value of $47,095,840 (Figure 5.1) for the company’s market value under this assumption. This results in a share price of about $5,233 with a total number of shares outstanding amounting to 9000.
Figure 5.1: Calculating the market value per share
|Book-to-Market ratio |Book value of equity |Market value of equity |Market value per |
| | | |share |
|0.8 |$58,869,800 |$47,095,840 |$5,233 |

Question 6
The decision to set the target price per share to $20 in the will result in the need for a stock split. At a current value per share of $5,233 this split will have to be substantial. Dividing this number by the target share price yields the required split ratio, which in this case results in a split ratio of $5,233 / $20 = 261.64. Thus, one share would be converted into approximately 262 shares, which would increase the total number of shares outstanding from 9,000 to 2,354,792.

Question 7
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