Question

Kevin’s Bacon Company Inc. has earnings of $5 million with 2,400,000 shares outstanding before a public distribution. Four hundred thousand shares will be included in the sale, of which 300,000 are new corporate shares, and 100,000 are shares currently owned by Ann Fry, the founder and CEO. The 100,000 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 $18.50 and the corporate proceeds are expected to produce $2.3 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 1

Earnings per share before offering = Net Income/Number of shares outstanding

= 5,000,000/2,400,000

= $2.08333 per share

After offering = (5,000,000+2,300,000)/(2,400,000+300,000)

= $2.7037 per share