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Financial Management

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Solution Summary

This solution provides responses to a set of finance multiple choice questions related to the Dilution of earnings, the Glass Stegal Act, Dividend Policy, Rights Offer and debt.

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In order to help you with this posting, I will first look at the 10 multiple choice questions, and then look at the two questions that follow.

As it relates to question 1, in order to find the dilution in earnings per share, you first have to calculate the earnings per share prior to the issue of new shares and the earnings per share after the issue of new shares. The difference between the two will give you the amount for dilution in earnings per share.

Therefore, EPS (Old) = Earnings / Number of Outstanding shares prior to issue

= $6,000,000.00 / 1,000,000

= $6.00 per share

EPS (New) = Earnings / Number of Outstanding shares after issue

= $6,000,000 / (1,000,000 + 300,000)

= $6,000,000 / 1,300,000

= $4.62 per share

Dilution in earnings per share is therefore $1.38 ($6.00 - 4.62).

For question 2, the Glass Stegal Act prohibited commercial banks from combining investment banking and commercial banking functions.

For question 3, a major desire of stockholders regarding dividend policy is to have dividend stability.

For question 4, a rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm acquire the company is called a poison ...

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