Hi, I need help with my Managerial Finance assignment please. . . Newdex has net

Question

Hi, I need help with my Managerial Finance assignment please. . .

Newdex has net income of $3,200,000 and 1,000,000 shares outstanding. It needs to raise $5,200,000 in funds for a new asset. Its investment banker plans to sell an issue of common stock to the public for $30, less a spread of 10%, How much-must Newders after-tax income increase to prevent dilution of EPS? (Round "EPS" to 1 decimal place, intermediate and final answers to the nearest whole dollar amount.) $341,333 $616,298 $554,667 None of these

Explanation / Answer

Answer :- Option B). $ 616,298.

Explanation :- Present basic earnings per share (EPS) = 3200000 / 1000000 = $ 3.20

Revised number of shares of the common stock = 5200000 / [ 30 * (1 - 0.10) ]

= 5200000 / (30 * 0.90)

= 5200000 / 27

= 192592.59 Shares.

Total shares (after the issue of new shares of common stock) = 1000000 + 192592.59

= 1192592.59 Shares.

Diluted earnings per share = 3200000 / 1192592.59 = $ 2.68323 (approx)

Difference in basic earnings per share and diluted earnings per share = 3.20 - 2.68323 = $ 0.51677 (approx).

Increase in after-tax net income in the given question = 1192592.59 * 0.51677 = $ 616296.07 (Most nearest to the $ 616,298 mentioned in Option B to the given question).

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