Question:
A company currently has 10 million shares outstanding and no debt. They wish to expand. The stock sells for $50 per share, but the book value per share is $20. Net income for the company is currently $18 million. The new facility will cost $40 million and it will increase new income by $500,000.
Calculate the new book value per share, the new total earning, the new EPS, the new stock price, and the new market-to-book ratio.
Assuming an instant price-earning ratio, what will the effect be of issuing new equity to finance the investment?
What would the new net income for the company have to be for the stock price to remain unchanged?