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# Earnings per share / Forward P/E

A company needs \$45 million to finance a major project in the company. The company is expected to generate a total of \$62 million in earnings next year with the addition of this project. The company currently has 10 million shares outstanding, with a price of \$25 per share. Assume perfect capital markets. Complete the following actions:

a. If the \$45 million needed for the project is raised by selling new shares, what will the forecast for next year's earnings per share be?

b. What is the firm's P/E if the company issues equity? What is the firm's forward P/E ratio if it issues debt? Explain the difference.

#### Solution Preview

a. If the \$45 million needed for the project is raised by selling new shares, what will the forecast for next year's earnings per share be?

We first calculate the new shares that are to be issued. Total amounmt to be raised is \$45,000,000 and the current price is \$25 per share
Number of new shares to be issued is 45,000,000/25 = 1,800,000.
Currently there are ...

#### Solution Summary

The solution explains the calculation of earnings per share and forward P/E

\$2.19