Wagner Trucking is considering investing in a new project that will cost $6 million and increase net income by 5 percent. 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

Quizplus · Accepted Answer

The correct answer is C.The new project will increase net income by 5 percent. The current net income is 2,000,000 shares * $1.60 per share = $3,200,000. The new net income will be $3,200,000 * 1.05 = $3,360,000. The new earnings per share will be $3,360,000 / (2,000,000 shares + 200,000 new shares) = $1.53.

Wagner Trucking Is Considering Investing in a New Project That