Greenleaf Ltd. currently issued capital includes $12 million in bonds and 6 million common shares with a market price of $50 per shares. The company has just announced a rights issue whereby an additional 600,000 shares will be issued at a subscription price of $45 per share. Ten rights will be needed to purchase one share. The company's net income this year is $25 million. Your friend Michele, who owns shares in Greenleaf Ltd., does not have the funds required to purchase the new shares and is concerned about the potential decline in the company's earnings per share and P/E ratio after the rights issue. 

Required: Advise Michele on the expected changes to the company's earnings per share and P/E ratio after the rights issue.

Answer rating: 100% (QA)

1 Calculation of New Shares The rights issue involves the issuance of 600000 new shares at a subscription price of 45 per share To determine the total ... View the full answer