Dilution effect of stock issue

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Reference no: EM1364883

Micromanagement, Inc. has 8 million shares of stock outstanding and will report earnings of $20 million in the current year. The company is considering the issuance of 2 million additional shares that will net $30 per share to the corporation.

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

b. Assume that Mircromanagement can earn 12.5% on the proceeds of the stock issue in time to include them in the current year's results. Should the new issue be undertaken based on earnings per share?

Reference no: EM1364883

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