The Carma S. Diego Travellers Corp. has 10 million shares of stock outstanding at a current market price of $10. It is considering a new share offering that will net it $9 a share on 1 million shares. Earnings this year are expected to be $18 million. (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

a. What is the immediate dilution potential for this new share issue?

Dilution $ per share

b-1. Assume Carma S. Diego Travellers Corp. can earn 12 percent on the proceeds of the share issue and these can be realized with this years results. Calculate earnings per share.

Earnings per share $

b-2. Should the new issue be undertaken based on earnings per share?

multiple choice 1

Yes

No

c-1. If the 1 million additional shares can be issued to net $16 per share and the company can earn 12 percent on the proceeds, calculate earnings per share.

Earnings per share $

c-2. Should the new issue be undertaken based on earnings per share?

multiple choice 2

Yes

No