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a. What are the EPS and P/E ratio before the new shares are sold via the rights offering?

a. What are the EPS and P/E ratio before the new shares are sold via the rights offering?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Raghubhai 

Walker Machine Tools has six million shares of common stock outstanding. The current market price of Walker common stock is $54 per share rights-on. The company's net income this year is $18 million. A rights offering has been announced in which 560,000 new shares will be sold at $48.5 per share. The subscription price of $48.5 plus 4 rights is needed to buy one of the new shares. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What are the EPS and P/E ratio before the new shares are sold via the rights offering? Earnings per share. Price-earnings ratio $ X b. What would be the EPS immediately after the rights offering? What would be the P/E ratio immediately after the rights offering? (Assume there is no change in the market value of the common stock, except for the change that occurs when the stock begins trading ex-rights.) Earnings per share. Price-earnings ratio. $ X
Transcribed Image Text:Walker Machine Tools has six million shares of common stock outstanding. The current market price of Walker common stock is $54 per share rights-on. The company's net income this year is $18 million. A rights offering has been announced in which 560,000 new shares will be sold at $48.5 per share. The subscription price of $48.5 plus 4 rights is needed to buy one of the new shares. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What are the EPS and P/E ratio before the new shares are sold via the rights offering? Earnings per share. Price-earnings ratio $ X b. What would be the EPS immediately after the rights offering? What would be the P/E ratio immediately after the rights offering? (Assume there is no change in the market value of the common stock, except for the change that occurs when the stock begins trading ex-rights.) Earnings per share. Price-earnings ratio. $ X
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