Stockholders are surprised to learn that the firm has invested $43 million in a project that has an expected payoff of $8 million per year for six years. The project’s cost of capital is 12%. What is the project’s NPV? There are 3 million outstanding shares. What should be the direct impact of this invest- ment on the per-share value of the common stock?
Stockholders are surprised to learn that the firm has invested $43 million in a project that has an expected payoff of $8 million per year for six years. The project’s cost of capital is 12%. What is the project’s NPV? There are 3 million outstanding shares. What should be the direct impact of this invest- ment on the per-share value of the common stock?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation
Section: Chapter Questions
Problem 9MC
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B6. (NPV and shareholder wealth) Stockholders are surprised to learn that the firm has invested $43 million in a project that has an expected payoff of $8 million per year for six years. The project’s cost of capital is 12%.
- What is the project’s NPV?
- There are 3 million outstanding shares. What should be the direct impact of this invest- ment on the per-share value of the common stock?
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