Walker Machine Tools has 7.2 million shares of common stock outstanding

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.)

Here’s the SOLUTION

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