Stock price = $40 
Market value of firm = $400,000
Number of shares = 10,000 
Earnings per share = $4
Book net worth = $500,000 
Return on investment = 8%

Self has not performed spectacularly to date. However, it wishes to
issue new shares to obtain $80,000 to finance expansion into a
promising market. Self?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 does not change.
Then:

Book net worth = $580,000
Total earnings = .08(580,000) = $46,400
EPS = $46,400/12,000 = $38.70

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.