Question

Wayne, Inc., wishes to expand Its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $36 per share, but the book value per share Is $8. Net income is currently $4 million. The new facility will cost $45 million, and It wll Increase net Income by $780,000. 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 declmal places, e.g., 32.16.) a-2. Calculate the new EPS. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g.,, 32.1616.) a-3. Calculate the new stock price. (Do not round Intermedlate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-4. Calculate the new market-to-book ratio. (Do not round Intermediate calculatlons and round your answer to 4 decimal places, e.g., 32.1616.) b. What would the new net income for the company have to be for the stock price to remain unchanged? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567) a-1. New book value per share a-2. New EPS a-3. New stock price a-4. New market-to-book ratio b. Net income

Answer 1

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PE EPS, STOCK DIVIDEND-Microsoft Excel File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum A A Wrap Text Calibri 11 General Fill Copy BIU . A Merge & Center Insert Delete Format Paste S % Conditional Format Cell Sort & Find & 2 Clear Format Painter ble Styles er Select Formatting Clipboard Font Alignment Number Shules Cells Editing GG83 GF GH GA GP GC GD GE GG GI GI GK GL GM GN GO WAYNE 83 84 NEW FACILITY COST 85 45000000 CURRENT PRICE PER SHARE- 86 36 1250000 45000000/36 87 NO OF SHARES TO BE ISSUED 88 89 TOTAL VALUE OF SHARES 85000000 (5000000 x 8) +(1250000 X 36) 90 TOTAL NO OF SHARES 6250000 50000001250000 91 13.60 85000000/6250000 92 a-1 NEW BOOK VALUE PER SHARE 93 94 95 CURRENT NET INCOME 4000000 96 ADDITIONAL NET INCOME 780000 97 4780000 TOTAL NET INCOME 98 NEW EPS 99 TOTAL NET INCOME/TOTAL NO OF SHARES 4780000/6250000= NEW EPS= 100 a-2 0.7648 101 14 deberk MARGIN MONEY EV PE EPS DIVABNORMAL marqinal tax EVA MVA 130%) HIGH LOW TARGET PRICE NAV HEDGE FUND MF APV ROSS price quote STOCK DIV PB ROPI Re erences 06:46 W ENG 15-06-2019

PE EPS, STOCK DIVIDEND-Microsoft Excel File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum Wrap Text Calibri 11 General Fill Copy A Merge & Center Conditional Format Insert Delete Format Paste BIU Cell Sort & Find & 2 Clear Format Painter ble Styles er Select Formatting Clipboard Font Alignment Number Shules Cells Editing GL121 GB GA GC GD GE GF GG GH GI GI GK GL GM GN GO CURRENT P/E RATIO MARKET PRICE/EPS CURRENT EPS=CURRENT NET INCOME/ EXISTING NUMBER OF SHARES 103 104 4000000/5000000 CURRENT EPS = 0.8 105 106 CURRENT P/E RATIO 36/0.8 45 107 108 NEW MARKET PRICE = CURRENT P/E RATIO X NEW EPS 109 110 a-3 NEW MARKET PRICE = 45 X 0.7648 34.42 111 NEW MARKET TO BOOK RATIO NEW MARKET PRICE/ NEW BOOK VALUE 112 NEW MARKET TO BOOK RATIO= 34.42/13.60 2.53 113 a-4 114 115 IF STOCK PRICE TO REMAIN UNCHANGED, THEN P/E RATIO MARKET PRICE /EPS 45 36/EPS 116 117 118 EPS 0.8 119 120 SO NEW NET INCOME SHOULD BE 5000000 0.8 X 6250000 EPS X TOTAL NO OF SHARES 121 NAV HEDGE FUND MF EV PE EPS DIV marginal tax APV ROSS price quote HHIGH LOW TARGET PRICE STOCK DIV ABNORMAL deberk EVA MVA 130% O 14 MARGIN MONEY PB ROPI Re erences 06:46 W ENG 15-06-2019