Question: In Problem, if the 1,500,000 additional shares can only be issued at $28 per share and the company can earn 10 percent on the proceeds, should the new issue be undertaken based on earnings per share?
Problem: American Health Systems currently has 6,000,000 shares of stock outstanding and will report earnings of $15 million in the current year. The company is considering the issuance of 1,500,000 additional shares that will net $50 per share to the corporation.
a. What is the immediate dilution potential for this new stock issue?
b. Assume that American Health Systems can earn 12 percent 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?