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The Hamilton Corporation has 5 million shares of stock outstanding and will report earnings of $6,230,000...

The Hamilton Corporation has 5 million shares of stock outstanding and will report earnings of $6,230,000 in the current year. The company is considering the issuance of 2 million additional shares which can only be issued at $37 per share.


a. Assume the Hamilton Corporation can earn 9.00 percent on the proceeds. Calculate the earnings per share.

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Answer #1

Existing Earnings = $6,230,000

Additional earnings due to New issue = 2,000,000 * $37 * 9% = $6,660,000

Total earnings revised = $12,890,000

Number of shares outstanding (revised) = 5 million shares + 2 million shares = 7 million shares

Earnings per share = total Earnings / no. of shares outstanding

Earnings per share = $12,890,000 / 7 million shares

Earnings per share = $1.8414

Earnings per share = $1.84 (rounded off to '2' decimals)

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