# Question

California Real Estate, Inc., expects to earn $71 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest $16 million today and $5 million in one year in real estate. The new investment will generate annual earnings of $11 million in perpetuity, beginning two years from today. The firm has 15 million shares of common stock outstanding, and the required rate of return on the stock is 12 percent. Land investments are not depreciable. Ignore taxes.

a. What is the price of a share of stock if the firm does not undertake the new investment?

b. What is the value of the investment?

c. What is the per-share stock price if the firm undertakes the investment?

a. What is the price of a share of stock if the firm does not undertake the new investment?

b. What is the value of the investment?

c. What is the per-share stock price if the firm undertakes the investment?

## Answer to relevant Questions

Ramsay Corp. currently has an EPS of $2.35, and the bench-mark PE for the company is 21. Earnings are expected to grow at 7 percent per year. a. What is your estimate of the current stock price? b. What is the target stock ...Lewin Skis, Inc., today expects to earn $8.50 per share for each of the future operating periods (beginning at Time 1), today if the firm makes no new investments and returns the earnings as dividends to the shareholders. ...Using the following returns, calculate the average returns, the variances, and the standard deviations for X andY:You bought one of Bergen Manufacturing Co.’s 7 percent coupon bonds one year ago for $1,080.50. These bonds make annual payments and mature six years from now. Suppose you decide to sell your bonds today when the required ...A stock has an expected return of 13.1 percent, a beta of 1.28, and the expected return on the market is 11 percent. What must the risk-free rate be?Post your question

0