Walker Machine Tools has 6.9 million shares of common stock outstanding. The current market price of Walker common stock is $80 per share rights-on. The company's net income this year is $24.50 million.
A rights offering has been announced in which 690,000 new shares will be sold al $74.50 per share. The subscription price plus six rights is needed to buy one of the new shares.
a. What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering?
b. 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.)