• A company with $2$ million shares outstanding and no debtcurrently has a net income of $$4$ million. The company is considering aninvestment that will cost $$3$ million and increase net income by $$900,000.$ The company$’$s stock sells for $$10$ per share but its book value per share is $$20.$Assume a constant price$–$earnings ratio.$\mathrm{}$

  $1.$ Does dilution take place?$\mathrm{}$

  $2.$ What would the new net income for the company have to be for the stock price to remain unchanged?

  
  

 

Answer rating: 100% (QA)

1 Does Dilution Take Place To determine if dilution takes place we need to calculate the impact of t... View the full answer