The Houston Corp. needs to raise money for an addition to its plant. It will iss

Question

The Houston Corp. needs to raise money for an addition to its plant. It will issue 300,000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150,000. Presently Houston Corp has earnings of $3 million and 750,000 shares outstanding. A. Compute the potential dilution from this new stock issue. B. Compute the net proceeds to Houston Corp. C. What rate of return must be earned on the net proceeds so that no dilution of earnings per share occurs? I asked this question before, but did not receive a clear response to each part of the question. Please help.

Explanation / Answer

Current EPS = 3000000/750,000 =$4 New earnings = 3000000-150,000 =$2850000 New EPS = 2850000/(300,000+ 750,000) =$2.71 Dilution = $4- $2.71 =$1.29

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