(Solution) - Here is recent financial data on Pisa Construction Inc -(2025 Original AI-Free Solution)

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Here is recent financial data on Pisa Construction, Inc.


Pisa has not performed spectacularly to date. However, it wishes to issue new shares to obtain $80,000 to finance expansion into a promising market. Pisa?s financial advisers think a stock issue is a poor choice because, among other reasons, ?sale of stock at a price below book value per share can only depress the stock price and decrease shareholders? wealth.? To prove the point they construct the following example: ?Suppose 2,000 new shares are issued at $40 and the proceeds are invested. (Neglect issue costs.)
Suppose return on investment doesn?t change. Then


Thus, EPS declines, book value per share declines, and share price will decline proportionately to $38.70.?
Evaluate this argument with particular attention to the assumptions implicit in the numerical example.