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Effect of Cash received from issue & invested on EPS

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No. of Outstanding share before issue = 4,000,000
No. of Outstanding share after issue 4,000,000 + 500,000 = 4,500,000 (500k shares issued @ 31 per share)

EPS before issue = $1.75 ; EPS after issue = $1.56

If the 500,000 shares can only be issues at $31 per share and the company can earn 6% on the net proceeds, should they still proceed with this issue based upon EPS?

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Solution Summary

The solution calculates the effect of on EPS when Cash received from issue of share & invested in interest instruments.

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Answer -

Net Income = 7,000,00 + 6% * (500000*31)
= 7,000,000 + ...

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