Answer:
(a) Earnings per share = Net income ÷ Number of shares
= $22,500,000 ÷ 6,500,000
= $3.46
Price-earnings ratio = Stock price ÷ Earnings per share
= $72 ÷ $3.46
= 20.81
(b) Earnings per share = Net income ÷ Number of shares
= $22,500,000 ÷ (6,500,000 + 650,000)
= $3.15
R = (M0 - S) ÷ (N + 1)
= ($72 - $66.50) ÷ (7 + 1)
= $0.69
where,
M0 = current market price of Walker common stock
S = selling price per share
N = seven rights is needed to buy one of the new shares
Ex-rights price = Rights-on price - Rights value
= $72 - $0.69
= $71.31
Price-earnings ratio = Stock price ÷ Earnings per share
= $71.31 ÷ $3.15
= 22.64
