2. Anderson Whitney has earnings of $4.5 million on 2.2 million shares outstandi

Question

2. Anderson Whitney has earnings of $4.5 million on 2.2 million shares outstanding. It is planning a public offering of 500,000 shares of which 200,000 will be new corporate shares and 300,000 will be issued to the founder and CEO as a secondary offering. The net price of the offering will be $22 and the corporate proceeds are expected to produce $2 million in corporate earnings. Find (1) the corporation’s earnings per share before the offering; (2) the corporation’s expected earnings per share after the offering.

Explanation / Answer

Solution 1:

Earnings for common shareholders before offering = $4.5 million

Nos of share outstanding before offering new share = 2.2 million

Corporation’s earnings per share before the offering = Earnings for common shareholders / Nos of shares outstanding

= $4.5 / 2.2 = $2.045 per share

Solution 2:

Earnings after new offering = $4.5 Million + $2 million = $6.5 million

Outstandings shares after new offering = 2.2 million + 0.5 million = 2.7 million

Expected Earning per share after new offering = $6.5 / 2.7 = $2.41 per share

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