Eaton, Inc., wishes to expand its facilities. The company currently has 5 millio

ID: 2712662 • Letter: E

Question

Eaton, Inc., wishes to expand its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $36 per share, but the book value per share is $8. Net income is currently $4 million. The new facility will cost $45 million, and it will increase net income by $800,000. Assume a constant price-earnings ratio.

Calculate the new book value per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Book Value is 13.6

Calculate the new total earnings.

Calculate the new EPS. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

Calculate the new stock price. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Calculate the new market-to-book ratio. (Do not round intermediate calculations and round your final answer to 4 decimal places, e.g., 32.1616.)

What would the new net income for the company have to be for the stock price to remain unchanged?(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to nearest whole dollar amount, e.g., 32.)

I just need help with this one. I couldn't get the new net income

Explanation / Answer

EPS = 0.768

Stock Price = 34.56

PE Ratio = 34.56/0.768 = 45

Let the revised EPS to have the same Market Price be x

PE Ratio is constant.

Thus, 34.56/x = 45

X = 34.56/45 = 0.768

Thus, required net income = 0.768 X 5000000 = 3840000

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Eaton, Inc., wishes to expand its facilities. The company currently has 5 millio

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Eaton, Inc., wishes to expand its facilities. The company currently has 5 millio

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