Question

The Heath Company has 145,000 shares of stock that each sell for $40. Suppose the company issues 9,500 shares of new stock at the following prices: $40, $25, and $20.

  

What is the effect of each of the alternative offering prices on the existing price per share? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

When Issue price = 40
New stock price = ( (145000*40)+(9500*40) ) / (145000+9500)	40
Effect on existing price per share [ 40 - 40 ]	price remains same

When Issue price = 25
New stock price = ( (145000*40)+(9500*25) ) / (145000+9500)	39.08
Effect on existing price per share [ 40 - 39.08 ]	Price declines by 0.92

When Issue price = 20
New stock price = ( (145000*40)+(9500*20) ) / (145000+9500)	38.77
Effect on existing price per share [ 40 - 38.77 ]	Price declines by 1.23