Dilution of earnings.Goodwood Golfing's earnings available for common shareholders (EAC) for this fiscal year is $6.5 million. Goodwood has 5 million common shares outstanding. The current share price is $24. Good wood is considering issuing 500,000 common shares that will net the company 95 percent of the current share price when all issue costs are considered.
a. Prior to share issue, what isGoodwood's earnings per share (EPS)?
b. Assuming Goodwood issues the share this fiscal year, what is the immediate dilution of the new share issue?
c. Assume tha the proceeds from the share issue are invested and provide a 12 percent return that flows to EAC. Is there a dilutive effect of the new share issue?