Question

Eaton, Inc., wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $30 per share, but the book value per share is $8. Net income is currently $4.8 million. The new facility will cost $45 million, and it will increase net income by $960,000. Assume a constant price-earnings ratio.

a-1	Calculate the new book value per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Book value

$

a-2	Calculate the new total earnings.

Total earnings

$

a-3	Calculate the new EPS. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

EPS	$  per share

a-4	Calculate the new stock price. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price

$

a-5	Calculate the new market-to-book ratio. (Do not round intermediate calculations and round your final answer to 4 decimal places, e.g., 32.1616.)

Market-to-book ratio

b.	What would the new net income for the company have to be for the stock price to remain unchanged? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to nearest whole dollar amount, e.g., 32.)

Net income

$

Answer 1

Solution new brok value peor share : Calculatlon of Curorent book value = 6o00 000 Shares X 8 F 48000000 New jacelety Add: 45000 000 Total New Book valwe (A) 93000 000

6o00000 Curorert Sharer Add: New Shares to be Isued ( 45000000 /30] 1500 000 750000D "Tatal Number of shares (B) share (AlB) New book vawe 12.40 per pew total earnings" of calculation a-2) Current earnings 4800000 Add; Increase In eannings 9600 00 . New Total earninge 5760 000

Calaulation a-3) of New EPS :- 5760000 New total earnings CA) 7500 000 Total Number of shares (8) A/B 0:7680 New EPS - ニ a-4) Calculation ok New Stock pouce :- Cuovrent Net Income (A) 4800000 Current Number cof shares (B) 6o00 000 (0=A/B Cuovrent EPS 0.80 Cuvrent market prece per share (6) 30 Current P/E ratio lE) = Dle 37.50 Neu EPS (F) 0.768 0 Ex pected PIE ratio = Cuoent plEnatio LE) 37.50 New stock = EXF prece 28.80. %3D