Question

In: Finance

The Hamilton Corporation has 3 million shares of stock outstanding and will report earnings of $6,880,000...

The Hamilton Corporation has 3 million shares of stock outstanding and will report earnings of $6,880,000 in the current year. The company is considering the issuance of 3 million additional shares that can only be issued at $33 per share.


a. Assume the Hamilton Corporation can earn 6.00 percent on the proceeds. Calculate the earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.)
  



b. Should the new issue be undertaken based on earnings per share?

Solutions

Expert Solution

The immediate dilution potential for the new stock will be calculated by finding the difference between earnings per share before stock issue and earnings per share after the stock issue.

Calculate the earnings per share before the stock issue:

EPS = total earning/number of shares

= $6880000/3000000

= $2.2933

Calculate the EPS after the stock issue;

EPS = $6880000/(3000000+3000000)

= $1.1467

Therefore, the amount of dilution will be $1.1466 i.e. (2.2933-1.1467)

The company earns 6 percent on the proceeds of stock issue. The stock can be issued at the price of $33 per share. The new income after the issuance of new share will be computed as follows:

New income = 6% × (3000000×$33) = $5940000

Total income = net income + total earning

= $6880000+$5940000

= $12820000

New EPS = $12820000/6000000

= $2.1367

therefore the new EPS = $2.14

B) As the EPS has decreased from $2.29 to $2.14, hence the new issue should not be undertaken

.

.

PLEASE DO GIVE A THUMBS UP I REALLY NEED IT


Related Solutions

The Carlton Corporation has $5 million in earnings after taxes and 2 million shares outstanding. The...
The Carlton Corporation has $5 million in earnings after taxes and 2 million shares outstanding. The stock trades at a P/E of 15. The firm has $4 million in excess cash. a. Compute the current price of the stock. (Do not round intermediate calculations and round your answer to 2 decimal places.)    b. If the $4 million is used to pay dividends, how much will dividends per share be? (Do not round intermediate calculations and round your answer to...
ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock,...
ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock, and 20,000   4.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 21 years. Currently the bonds are selling at 104% of their face values. The market risk premium is 10%. The risk-free rate is 2.5%. The common stock sells for $75 per share. The preferred stock sells for...
Anderson Corporation has 1 million shares of common stock outstanding, 1/2 million shares of preferred stock,...
Anderson Corporation has 1 million shares of common stock outstanding, 1/2 million shares of preferred stock, and 20,000 3.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 14 years. Currently the bonds are selling at 94% of their face values. The market risk premium is 9%. The risk-free rate is 3%. The common stock sells for $40 per share. The preferred stock sells for...
Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that...
Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated required rate of return on the market is 13...
American Health Systems currently has 5,500,000 shares of stock outstanding and will report earnings of $16...
American Health Systems currently has 5,500,000 shares of stock outstanding and will report earnings of $16 million in the current year. The company is considering the issuance of 1,800,000 additional shares that will net $40 per share to the corporation. a. What is the immediate dilution potential for this new stock issue? (Do not round intermediate calculations and round your answer to 2 decimal places.) b-1. Assume that American Health Systems can earn 12 percent on the proceeds of the...
American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of $10...
American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of $10 million in the current year. The company is considering the issuance of 1,700,000 additional shares, which can only be issued at $18 per share.    a. Assume that American Health Systems can earn 6 percent on the proceeds. Calculate earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.)    b. Should the new issue be undertaken based...
Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred...
Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 100,000 units of 9 percent semiannual bonds outstanding, par value $1,000 each. The preferred stock pays a dividend of $6 per share. The common stock currently sells for $32 per share and has a beta of 1.15, the preferred stock currently sells for $67 per share, and the bonds have 15 years to maturity and sell for 91 percent of par....
Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred...
Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 100,000 units of 9 percent semiannual bonds outstanding, par value $1,000 each. The preferred stock pays a dividend of $6 per share. The common stock currently sells for $32 per share and has a beta of 1.15, the preferred stock currently sells for $67 per share, and the bonds have 15 years to maturity and sell for 91 percent of par....
Titan Mining Corporation has 9.7 million shares of common stock outstanding, 410,000 shares of preferred stock...
Titan Mining Corporation has 9.7 million shares of common stock outstanding, 410,000 shares of preferred stock outstanding, and 215,000 bonds outstanding with a par value of $1,000 each. The common stock currently sells for $45 per share and has a beta of 1.35, the preferred stock currently sells for $95 per share, and the bonds sell for 116 percent of par. The cost of common equity is 16.48 percent, preferred equity is 4.21 percent, and the debt's yield to maturity...
Titan Mining Corporation has 8.9 million shares of common stock outstanding, 330,000 shares of preferred stock...
Titan Mining Corporation has 8.9 million shares of common stock outstanding, 330,000 shares of preferred stock outstanding, and 175,000 bonds outstanding with a par value of $1,000 each. The common stock currently sells for $37 per share and has a beta of 1.45, the preferred stock currently sells for $87 per share, and the bonds sell for 118 percent of par. A. The cost of common equity is 15.17 percent, preferred equity is 5.75 percent, and the debt's yield to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT