The Hamilton Corporation currently has 2 million shares of stock outstanding and
ID: 2660726 • Letter: T
Question
The Hamilton Corporation currently has 2 million shares of stock outstanding and will report earnings of $6,700,000 in the current year. The company is considering the issuance of 1 million additional shares that will net $37 per share to the corporation.
What is the immediate dilution effect for this new stock issue? (Enter your answer in dollars per share not in millions. Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)
Assume the Hamilton Corporation can earn 13.40 percent on the proceeds of the stock issue in time to include them in the current year
(a)What is the immediate dilution effect for this new stock issue? (Enter your answer in dollars per share not in millions. Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
a) current eps = $6.7m/2m = $3.35
diluted eps = $6.7/3m = $2.233
effect = $1.1167 reduction
b) $37m*0.134 = $4.958m
return per new share $4.958m/1m = $0.4958
new eps = ($6.7m + $4.958m)/3m = $3.886
thus new eps $3.886 > original eps $3.35
new eps $3.886
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