Problem; Walker machine tools has 5 million shares of common stock outstanding. The current market price of Walker common stock is $42 per share rights-on. The company's net income this year is $15 million. A rights offering has been announced in which 500,000 new shares will be sold at $36.50 per share. The subscription price plus 10 rights is needed to buy one of the new shares.
Q1. What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering?
Q2. What would the earnings per share be immediately after the rights offering? What would the price-earnings ratio be immediately after the rights offering? (assume there is no change in the market value of the stock, except for the change when the stock begins trading ex-rights.) Round answers to two places after the decimal point.