Wagner Trucking is considering investing in a new project that will cost $6 million and increase net income by 5 %%. This project will be completely funded by issuing new equity shares. Currently, the firm has 2 million shares of stock outstanding with a market price of $30 per share. The current earnings per share are $1.60. What will the earnings per share be if the project is implemented?

Question

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To find the new earnings per share (EPS), first calculate the number of new shares issued: $6 million / $30 per share = 200,000 shares. The new total shares = 2,000,000 + 200,000 = 2,200,000 shares. The current net income is 2,000,000 shares * $1.60 = $3,200,000. With a 5% increase, the new net income = $3,200,000 * 1.05 = $3,360,000. The new EPS = $3,360,000 / 2,200,000 shares = $1.53.

Wagner Trucking Is Considering Investing in a New Project That