The Hamilton Corporation has 5 million shares of stock outstanding and will report earnings of $6,460,000 in the current year. The company is considering the issuance of 2 million additional shares which can only be issued at $35 per share.
a. Assume the Hamilton Corporation can earn 8.00
percent on the proceeds. Calculate the earnings per share.
(Do not round intermediate calculations and round your
answer to 2 decimal places.)
Earnings per Share -
b. Should the new issue be undertaken based on
earnings per share?
Yes | |
No |
Hello,
a) EPS = Earning per share =
Earnings = $6460000
Outstanding shares = 5 million
Earnings on new shares issue = 2000000*35 = 70000000 * 8%=
5600000
Total Earnings = 6460000 + 5600000= 12060000
Total outstanding shares = 5 + 2 million= 7 million
EPS = 12060000 / 7000000 = 1.72286
b) EPS before additional share issued = 6460000 / 5000000 =
1.29
EPS in case of additional share issued = 5600000 / 2000000 =
2.8
EPS is increasing while additional share issued
Answer of Part (b) is yes
I hope this clear your doubt.
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