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Teardrop, Inc., wishes to expand its facilities. The company currently has 15 million shares outstanding and no debt. The current stock sells for $21 per
Teardrop, Inc., wishes to expand its facilities. The company currently has 15 million shares outstanding and no debt. The current stock sells for $21 per share, but the book value per share is $10. Net income for Teardrop is currently $4.0 million. The new facility will cost $50 million, and it will increase net income by $660,000. The project is financed by the new equity. Assume a constant priceearnings ratio.
a-5. Calculate the new market-to-book ratio. (Do not round intermediate calculations and round your final answer to 4 decimal places. (e.g., 32.1616))
Market-to-book ratio
b. What would the new net income for the company have to be for the stock price to remain unchanged? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
Net income $
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