AUF Bank has been told by examiners that it needs to raise an additional $8...
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AUF Bank has been told by examiners that it needs to raise an additional $8 million in long-term capital. Its outstanding common equity shares total 5.4 million, each bearing a par value of $1. This bank currently holds assets of nearly $2 billion, with $135 million in equity. During the coming year, the banks economist has forecast operating revenues of $180 million, of which operating expenses are $25 million plus 70% of operating revenues. Among the options for raising capital considered by management is selling $8 million in preferred stock bearing a 9 percent annual dividend yield at $12 per share. Calculate the impact of this approach on bank earning per share. (Assume a 34% tax rate.)
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