Micromanagement, Inc: Dilution potential of new stock issue
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Dilution effect of stock issue
Micromanagement, Inc. has 8 million shares of stock outstanding and will report earnings of $20 million in the current year. The company is considering the issuance of 2 million additional shares that will net $30 per share to the corporation.
a. What is the immediate dilution potential for this new stock issue?
b. Assume that Mircromanagement can earn 12.5% on the proceeds of the stock issue in time to include them in the current year's results. Should the new issue be undertaken based on earnings per share?
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Solution Summary
The solution shows all the calculations to arrive at the answers to the problems.
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a) Total outstanding shares = 8 million
Current EPS = 20/8=$205 per share
Outstanding shares after the issue = 10 ...
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