Francis Corp. is coming to the market with a new offering of 1,000,000 shares, at $20 to the public. Francis Corp. will receive $17 per share. The firm has 2 million shares outstanding and earnings of $8 million. What is the amount of dilution in earnings per share?

Question

Quizplus · Accepted Answer

To calculate the dilution in earnings per share, we need to find the new earnings per share after the new offering.

First, we need to calculate the total amount of money the company will receive from the offering:

1,000,000 shares x $17 per share = $17,000,000

Next, we add this money to the company's earnings:

$8,000,000 + $17,000,000 = $25,000,000

Now, we divide the total earnings by the total number of shares after the offering:

$25,000,000 / 3,000,000 shares = $8.33 per share

Finally, we subtract the original earnings per share from the new earnings per share to find the dilution:

$8.33 - $6.67 = $1.66

Since we want the dilution per share, we divide this by the number of new shares:

$1.66 / 1 = $1.66

Therefore, the dilution in earnings per share is $1.66 or approximately $1.33 (rounded to the nearest cent). The closest answer choice is D.