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Question: In Problem, if the one million additional shares can only be issued at $23 per share and the company can earn 6.0 percent on the proceeds, should the new issue be undertaken based on earnings per share?

Problem: The Hamilton Corporation currently has 4 million shares of stock outstanding and will report earnings of $6,000,000 in the current year. The company is considering the issuance of 1 million additional shares that will net $30 per share to the corporation.

a. What is the immediate dilution effect for this new stock issue?

b. Assume the Hamilton Corporation can earn 10.5 percent on the proceeds of the stock issue in time to include them in the current year's results. Should the new issue be undertaken based on earnings per share?

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Category:- Basic Finance
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