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# Chapter_15_-_Moodle_Ready - Chapter 15 Problems 15-A...

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Chapter 15 Problems 15-A. Louisiana Timber Company currently has 5 million shares of stock outstanding and will report earnings of \$9 million in the current year. The company is considering the issuance of 1 million additional shares that will net \$40 per share to the corporation. a . What is the immediate dilution potential for this new stock issue? b . Assume the Louisiana Timber Company can earn 11 percent on the proceeds of the stock issue in time to include it in the current year’s results. Should the new issue be undertaken based on earnings per share? 15-A. Solution: Louisiana Timber Company a. Earnings per share before stock issue \$9,000,000/5,000,000 = \$1.80 Earnings per share after stock issue \$9,000,000/6,000,000 = \$1.50 dilution \$1.80 1.50 \$ .30 per share b. Net income = \$9,000,000 + .11 (\$1,000,000 × \$40) = \$9,000,000 + .11 (\$40,000,000) = \$9,000,000 + \$4,400,000 = \$13,400,000 Earnings per share after additional income EPS = \$13,400,000/\$6,000,000 = \$2.23 Yes, the EPS of \$2.23 is higher than \$1.80. S15-1

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15-B. Assume Sybase Software is thinking about three different size offerings for issuance of additional shares.
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Chapter_15_-_Moodle_Ready - Chapter 15 Problems 15-A...

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