Question: Walker Machine Tools has 5 5 million shares of common stock

Walker Machine Tools has 5.5 million shares of common stock outstanding. The current market price of Walker common stock is $52 per share rights-on. The company’s net income this year is $17.5 million. A rights offering has been announced in which 550,000 new shares will be sold at $46.50 per share. The subscription price plus five rights is needed to buy one of the new shares.
a. What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering?
b. What would the earnings per share be immediately after the rights offering? What would the price-earnings ratio be immediately after the rights offering? (Assume there is no change in the market value of the stock, except for the change when the stock begins trading ex-rights.) Round all answers to two places after the decimal point.

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  • CreatedOctober 14, 2014
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