Task: Dilution effect of stock issue
Micromanagement, Inc. has 8 million shares of stock outstanding and will report earnings of $20 million in the current year. The company is considering the issuance of 2 million additional shares that will net $30 per share to the corporation.
Q1. What is the immediate dilution potential for this new stock issue?
Q2. Assume that Mircromanagement can earn 12.5% on the proceeds of the stock issue in time to include them in the current year's results. Should the new issue be undertaken based on earnings per share?