# common stock calculations

A company needs \$35,943,750 to finance a major project in the company. The company expects that next yearâ€™s earnings from current operations and the additional earnings from the new project will be a total of \$45,650,000. The company currently has 5,075,000 shares outstanding, with a price of \$17.75 per share. The companyâ€™s management is assuming that any the additional shares issued to finance the project will not affect the market price of the companyâ€™s common stock.

Calculate the following:

• If the \$35,943,750 needed for the project is raised by selling new shares, what will the forecast for next yearâ€™s earnings per share (EPS) be?
• If the \$35,943,750 needed for the project is raised by selling new shares, what will the firmâ€™s price earnings ratio (PE ratio) be?
• If the \$35,943,750 needed for the project is raised by issuing new debt, what will the forecast for next yearâ€™s earnings per share be? (Assume that there is no â€œtax shield effectâ€ with issuing corporate debt.)
• If the \$35,943,750 needed for the project is raised by issuing new debt, what will the firmâ€™s PE ratio be?