Question

Portman has 500,000 shares outstanding, and Judy Davis, an investor, holds 7,500 shares at the current price (computed above). Suppose Portman is considering issuing 62,500 new shares at a price of $27.82 per share. If the new shares are sold to outside investors, by how much will Judy’s investment in Portman Industries be diluted on a per-share basis?

$0.47 per share

$0.55 per share

$0.68 per share

$1.16 per share

Thus, Judy’s investment will be diluted, and Judy will experience a total ____ of . ____ ?

Answer 1

Judy's investment in Portman Industries will be diluted by $0.3096 per share.

Step-by-step explanation:

To determine how Judy's investment in Portman Industries will be diluted on a per-share basis due to the issuance of new shares, we first need to calculate the total shares after the new issuance. To determine how much Judy's investment in Portman Industries will be diluted on a per-share basis, we can use the formula:

Dilution per share = (Number of new shares / Total shares after new issuance) * Price per share

Given that Portman has 500,000 shares outstanding and is issuing 62,500 new shares at a price of $27.82 per share, the total shares after new issuance would be 500,000 + 62,500 = 562,500 shares.

Therefore, the calculation would be:

Dilution per share = (62,500 / 562,500) * $27.82 = $0.3096 per share

So, Judy's investment in Portman Industries would be diluted by $0.3096 per share.