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Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of
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18 votes
18 votes
Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6 million before recording the new issue. What is the amount of dilution in earnings per share

User Banky
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1 Answer

17 votes
17 votes

Answer:

$1.86

Step-by-step explanation:

Earnings per Share = Earnings Attributable to Holders of Common Stock ÷ Common Stock Outstanding

Old Earnings Per Share

Earnings per Share = $6,000,000 ÷ 1,000,000 = $6.00

New Earnings Per Share

Earnings per Share = $6,000,000 ÷ 1,450,000 = $4.14

Dilution in earnings per share = $6.00 - $4.14 = $1.86

User Lil Ari
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