It is January 1, 2012, and Boomer Equipment Company (BEC) currently has assets of $250 million and
It is January 1, 2012, and Boomer Equipment Company (BEC) currently has assets of $250 million and expects to earn a 10% return on assets during the year. There are 20 million shares of BEC stock outstanding. The firm has an opportunity to invest in a (minimally) positive-NPV project that will cost $25 million over the course of 2012, and is trying to determine if it should finance this investment by retaining profits over the course of the year or by issuing new shares while paying the profits earned as dividends.. Show that the decision is irrelevant in a world of perfect and frictionless markets.
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There are currently 20 million BEC shares outstanding with a market price of 12 50 share 250 million …View the full answer
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