Problem:
Dawson Motor Company has 6 million shares outstanding with total earnings of $12 million. The company is considering issuing 1.5 million new shares.
a. What will be the immediate dilution in earnings per share?
b. If the new shares can be sold at $25 per share and the proceeds will earn 12 percent, will there still be dilution? Based on the new EPS, should the new shares be issued?