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Problem:

Teardrop, Inc., wishes to expand its facilities. The company currently has 15 million shares outstanding and no debt. The stock sells for $21 per share, but the book value per share is $10. Net income is currently $4.0 million. The new facility will cost $50 million, and it will increase net income by $660,000. Assume a constant price-earnings ratio.

Required:

Question 1: Calculate the new book value per share.

Question 2: Calculate the new total earnings.

Question 3: Calculate the new EPS.

Question 4: Calculate the new stock price.

Question 5: Calculate the new market-to-book ratio.

Question 6: What would the new net income for the company have to be for the stock price to remain unchanged?

Note: Please explain comprehensively and give step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91175193

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