Question

I need help with part b.

Kevin’s Bacon Company Inc. has earnings of $9 million with 2,100,000 shares outstanding before a public distribution. Seven hundred thousand shares will be included in the sale, of which 400,000 are new corporate shares, and 300,000 are shares currently owned by Ann Fry, the founder and CEO. The 300,000 shares that Ann is selling are referred to as a secondary offering, and all proceeds will go to her.

The net price from the offering will be $16.50, and the corporate proceeds are expected to produce $1.8 million in corporate earnings.

a. What were the corporation’s earnings per share before the offering? (Do not round intermediate calculations and round your answer to 2 decimal places.)
   ANSWER: $4.28

b. What are the corporation’s earnings per share expected to be after the offering? (Do not round intermediate calculations and round your answer to 2 decimal places.)

I tried $3.86 but it was incorrect

Answer 1

Solution :-

Earnings before offering = $9000000 Shares Outstanding = 2100000 Shares Now, Earnings per share before offering - Earnings before offering Shares outstanding $ 9000000 $ $ 4.29 2100000 Shares (b) Step 1 - Calculate Earnings after offerning. $9000000 Earnings before offering Add Increase in Corporate earnings due to offering $1800000 Earnings after offering $10800000

Step 2 & Calculate Corporate Shares Outstanding after offering. Shares before offering 2100000 Add New to be Corporate Shares offered 400000 Shares Outstanding after 2500000 offering Now, Earnings per Share after offering Earnings after offering Shares outstanding after offering $ 10800000 $ 4.32 2500000 Shades
Note : 300000 shares which are currently owned by Ann fry should not be included because these shares are secondary offering and all proceeds will go to her. Therefore, the proceeds of these shares would not contribute anything to the corporate earnings.