Atherton's has assets in two locations, NY and WA. Based on some new discoveries by its R&D wing, it now has the ability to invest in a new project and is trying to figure out which of two decisions to make: whether to 

a) issue stock to fund the new project, which requires an investment of $100, or 

b) to forego the project. 

The problem is that it has information that it cannot credibly reveal to the marketplace. As far as stockholders are concerned, Atherton has an equal likelihood of being in any one of two states:

 

Values	State 1	State 2
Assets in place NY	140	160
Assets in place WA	100	100
Project NPV	10	20
	250	280

 

 Will Atherton find it desirable to issue equity to fund the project, will it forego the project ? 

 If it does issue equity, what proportion of the combined firm (existing firm plus new project) will it have to give to the new equityholders?

Answer rating: 100% (QA)

Athertons Investment Decision and Equity Issuance Atherton needs to decide whether to issue stock an... View the full answer