American Health Care Services currently has 6,400,000 shares of stock outstandin

Question

American Health Care Services currently has 6,400,000 shares of stock outstanding and will report earnings of 13 million in the current year.The company is considering the issuance if 1,500,000 additional shars that will net $60 per share to the corporation

a= what is the immediate dilution potential for this new stock issue?

b=Assume they can earn 8% on the proceeds of stock issue in time to include them in the current years results Calculate EPS

b2=Should the new issue be undertaken according to EPS

Explanation / Answer

Basic EPS= 13000000/6400000=2.03

Dilluted EPS= 13000000/7900000=1.64

b. proceeds on stock issue= 1500000*60*8%=7200000

total earning=7200000+13000000=20200000

EPS= 20200000/7900000=2.55

c.yes the new issue should be undertaken as it increases the EPS.

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