Karim Ltd. currently issued capital includes $10 million in bonds and 5 million common shares with a market price of $42 per shares. The company has just announced a rights issue whereby an additional 500,000 shares will be issued at a subscription price of $36.50 per share. Ten rights will be needed to purchase one share. The companys net income this year is $15 million. Your friend Tom, who owns shares in Karim Ltd., does not have the funds required to purchase the new shares and is concerned about the potential decline in the companys earnings per share and P/E ratio after the rights issue. Required: Advise Tom on the expected changes to the companys earnings per share and P/E ratio after the rights issue.