Aero Company currently has net income of $3 million and 1.5 million common shares outstanding which sell for $20 per share. Aero has decided to issue new stock to raise $4,000,000 to expand its operations. Aero's investment banker will sell the new shares for $18 per share with a spread of 7%. There will be a $60,000 registration cost.
Calculate new EPS and stock price immediately after the sale if the PE ratio remains constant.
Please see the solution below
We first calculate the current P/E
Net income = 3,000,000
Number of shares outstanding = 1,500,000
Earnings per shares (EPS) = Net ...
The solution explains how to determine the new EPS and Stock Price after the sale