Kitchens and More is an all-equity firm with 145,000 shares of stock outstanding.The book value per share is $22 and the market value per share is $56.The current net income is $466,900.An expansion project will cost $2.2 million.Assume the price-earnings ratio remains constant.By what amount must the new project increase the net income for the stock price to remain at $56?

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Quizplus · Accepted Answer

Current EPS = $466,900/145,000 = $3.22New shares outstanding = 145,000 + $2,200,000/$56 = 184,286Project income needed = ($3.22 × 184,286)- $466,900 = $126,500

Kitchens and More Is an All-Equity Firm with 145,000 Shares