Find the immediate dilution potential

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Reference no: EM1314357

Immediate dilution potential for new stock issue.

 1. Hamilton Control Systems will invest $90,000 in a temporary project that will generate the following cash inflows for the next three years.

Year

Cashflow

1

$23,000

2

38,000

3

60,000

The firm will be required to spend $15,000 to close down the project at the end of three year. If the cost of capital is 10 percent, should the investment be undertaken? Use the net present value method.

2. The Hamilton Corporation currently has 4 million shares of stock outstanding and will report earnings of $6,000,000 in the current year. The company is considering the issuance of 1 million additional shares that will net $30 per share to the corporation.

a. What is the immediate dilution potential for this new stock issue?

b.Assume the Hamilton Corporation can earn 10.5 percent 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?

Reference no: EM1314357

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