American Health Systems has 5,600,000 shares of stock outstanding and will report earnings of $17 million in the current year. Thecompany is considering the issuance of 1,300,000 additional shares, which can only be issued at $21 per share.a. Assume that American Health Systems can earn 4 percent on the proceeds. Calculate earnings per share. (Do not roundintermediate calculations and round your answer to 2 decimal places.)Earnings per shareb. Should the new issue be undertaken based on earnings per share?O YesO No10BNext >

Earnings per share (EPS) refers to the earnings of the company per outstanding share. It is measured…

Answered: American Health Systems has 5,600,000…

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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Young Corporation stock currently sells for $20 per share. There are 1 million shares currently outstanding. The company announces plans to raise $4 million by offering shares to the public at a price of $20 per share. a. If the underwriting spread is 6%, how many shares will the company need to issue in order to be left with net proceeds (before other administrative costs) of $4 million ? (Do not round intermediate calculations. Round your answer to the nearest whole number.) b. If the under writing spread is 6% and the other administrative costs are $85,000, what is the dollar value of the total direct costs of the issue? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) c. If the share price falls by 4% at the announcement of the plans to proceed with a seasoned offering, what is the dollar cost of the announcement effect? (Enter your answer in dollars not in millions.)
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Pimento Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares outstanding at a price of $27.50 per share. Pimento had been following a 100% dividend payout policy until now but would now like to shift to the Residual Dividend policy for this year. Dividends from this year’s earnings are paid next year. a) What is the EPS and DPS for Pimento under the 100% dividend payout policy? b) If the planned capital outlay is for $72 million and the target capital structure is 1.5:1, willPimento be able to pay dividends as per the Residual Dividend Policy? If so, what will be the dividend per share? Investors require a 22.72% rate of return. Ignore taxes. c) IfPimento shifts from a 100% payout policy to the residual dividend policy, what impact will this have on its stock price, assuming the firm earns 22.72% as its ROE? Support your argument through relevant computations. Which argument of the dividend policy decision would you have demonstrated…

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