Walker Machine Tools has 7.2 million shares of common stock outstanding. The current market price of Walker common stock is $86 per share rights-on. The company’s net income this year is $26.00 million. A rights offering has been announced in which 720,000 new shares will be sold at $80.50 per share. The subscription price plus nine rights is needed to buy one of the new shares.
a. What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering? (Do not round intermediate calculations and round your answers to 2 decimal places.)
b. What would the earnings per share be immediately after the rights offering? What would the price-earnings ratio be immediately after the rights offering? (Assume there is no change in the market value of the stock, except for the change when the stock begins trading ex-rights.) (Do not round intermediate calculations and round your answers to 2 decimal places.)