Erwin Enterprises has 10 million shares outstanding with a current market price of $10 per share. There

Question:

Erwin Enterprises has 10 million shares outstanding with a current market price of $10 per share. There is one investment available to Erwin, and its cash flows are provided below. Erwin has a of 10%. Given this information, determine the impact on Erwin’s stock price and firm value if capital markets fully reflect the value of undertaking the project.
Year Cash Flow
0............-$10,000,000
1............ $3,000,000
2............ $4,000,000
3............ $5,000,000
4........... $6,000,000
5............ $9,800,000
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...