The Houston Corp

question 26

Essay

The Houston Corp. needs to raise money for an addition to its plant. It will issue 250,000 shares of new common stock. The new shares will be priced at $50 per share with a 9% spread on the offer price. Additional registration costs will be $150,000. Presently, Houston Corp. has earnings of $3 million and 700,000 shares outstanding.
a) Compute the potential dilution from this new stock issue.
b) Compute the net proceeds to Houston Corp.
c) What rate of return must be earned on the net proceeds of the new issue so that no dilution of earnings per share occurs? You may ignore the effect of the costs of the new issue on the numerator used in the earnings-per-share calculation by assuming it's been accrued already for purposes of the "before and after" calculation.

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Definitions:

Discrimination

Unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, sex, or disability.

Group Health Plan

A health insurance plan offered by employers, organizations, or entities to its members, providing medical care benefits to a group of people.

Respondeat Superior

Let the master answer.

Latin

A classical language originating from the Roman Empire, now primarily used in scholarly and ecclesiastical contexts.