Question

Quisco Systems has 6.2 billion shares outstanding and a share price of $ 18.38. Quisco is considering developing a new networking product in house at a cost of $ 524 million.​ Alternatively, Quisco can acquire a firm that already has the technology for $ 886 million worth​ (at the current​ price) of Quisco stock. Suppose that absent the expense of the new​ technology, Quisco will have EPS of $ 0.67. a. Suppose Quisco develops the product in house. What impact would the development cost have on​ Quisco's EPS

Answer 1

Revised EPS = 0.086

Step-by-step explanation:

Value of product is calculated as

value of product = number of shares × price of one share\

= 6200000 × 18.38

= $113,956,000

number of shares used by EPS

Shares = 6200000 ×0.67 = 4,154,000

shares need to have for financing is given as

`shares = (88600000)/(18.38)`

shares = 48,204,570.19

`Revised EPS = (4154000)/(48204570.19)`

= 0.086