The Hub corporation currently has 4 million shares of stocks outstanding and will report earnings of 6 million in the current year. The company is considering the issuance of 1 million additional shares that will net $30 per share to the corporation.
1. What is the immediate dilution effect for this new stock issue?
2. Assume the company can earn 10.5 % on the proceeds of the stock issue in time to include them in the current years' results.
3. If the million additional shares can only be issued at $23 and the company can place 6% on the proceeds, should the new issue be undertaken based on the EPS?