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American health systems currently has 5,800,000 shares of stocks outstanding it will report earnings of 14...

American health systems currently has 5,800,000 shares of stocks outstanding it will report earnings of 14 million in the current year. The company is considering the issuance of 1,400,000 additional shares that will net $20 per share to the corporation.

What is the immediate dilution potential for this new stock issue?

Assume that American health systems can earn 14% on the proceeds of the stock issue in time to include them in the current year‘s results. Calculate earnings per share.

Should the new issue be undertaken?

Do not round immediate calculations and round answer to 2 decimal places.
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Answer #1
Existing Shares
Shares outstanding 5,800,000
Earnings      1,400,000
Current EPS 0.24
New Issue
Shares      1,400,000
Share price $20
Net Proceeds    28,000,000
Assumption of Earnings 14%
Additional Earnings      3,920,000
New EPS
Shares outstanding      7,200,000
Earnings      5,320,000
EPS after new issue 0.74

New issue should be undertaken since company can EPS is grown three times with new proceeds

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