Problem:
Teardrop, Inc., wishes to expand its facilities. The company currently has 15 million shares outstanding and no debt. The stock sells for $21 per share, but the book value per share is $10. Net income is currently $4.0 million. The new facility will cost $50 million, and it will increase net income by $660,000. Assume a constant price-earnings ratio.
Required:
Question 1: Calculate the new book value per share.
Question 2: Calculate the new total earnings.
Question 3: Calculate the new EPS.
Question 4: Calculate the new stock price.
Question 5: Calculate the new market-to-book ratio.
Question 6: What would the new net income for the company have to be for the stock price to remain unchanged?
Note: Please explain comprehensively and give step by step solution.