Question: Erwin Enterprises has 10 million shares outstanding with a current

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 cost of capital of 10 percent. 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.
Initial cash outflow = $10,000,000
Year .... Cash Inflow
1 ..... $3,000,000
2 ..... $4,000,000
3 ..... $5,000,000
4 ..... $6,000,000
5 ..... $9,800,000

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  • CreatedMay 13, 2015
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