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Amed Construction is considering investing in a new project that will cost $5 million and increase...

Amed Construction is considering investing in a new project that will cost $5 million and increase net income by 8%. This project will be completely funded by issuing new equity shares. Currently, the firm has 4 million shares of stock outstanding with a market price of $40 per share. The current earnings per share are $1.50. What will the earnings per share be if the project is implemented? ( Do not use the $ sign in your answer. If your answer is $85.93, enter 85.93)

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Answer #1

Answer : Current Earnings of Amed Construction = Current Earning per share * Number of shares outstanding

= 1.50 * 4 million

= 6 million

Earnings after the Project is implemented = Current Earning * (1 + Growth rate)

= 6 million * (1 + 0.08)

= 6.48 million or 6,480,000

Number of Shares to be issued to fund project = 5,000,000 / 40 = 125000

Number of shares if the project is implemented = 4,000,000 + 125,000 = 4,125,000

Earning Per share = Earnings for shareholder / Number of shares outstanding

Earnings per share be if the project is implemented = 6,480,000 / 4,125,000

= 1.57

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