To answer this question refer to the figure below The
To answer this question, refer to the figure below. The Badvest Corporation is an all-equity firm with BD in cash on hand. It has an investment opportunity at point C, and it plans to invest AD in real assets today. Thus, the firm will need to raise AB by a new issue of equity.
a. What is the NPV of the investment?
b. What is the rate of return on the old equity? Measure this rate of return from before the investment plans are announced to afterwards.
c. What is the rate of return on the new equity?
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