The Hamilton Company currently has 4 million shares of stock outstanding and will report earnings of $6 million in the current year. The company is considering the issuance of 1 million additional shares of stock that will net $30 per share to the corporation.
a. What is the immediate dilution potential for this new share issue?
b. Assume the Hamilton Company can earn 10.5 percent on the proceeds of the share issue in time to include it in the current year's results. Should the new issue be undertaken based on earnings per share?