Question: 1. If RRE seeks to maximize total market value, should the company issue debt or equity to finance the land purchase? Explain. 2. Suppose RRE

1. If RRE seeks to maximize total market value, should the company issue debt or equity to finance the land purchase? Explain.

2. Suppose RRE decides to issue equity to finance the purchase

a. What is the net present value (NPV) of the project?

b. Construct RRE's market value balance sheet after it announces the firm will finance the purchase using equity.

i. What would be the new price per share of the firm's stock?

ii. How many shares will RRE need to issue to finance the purchase?

Construct RRE's market value balance sheet after the equity issue but before the purchase has been made.

3. How many shares of common stock does RRE have outstanding?

a. What is the price per share of the firm's stock?

b. Suppose RRE decides to issue debt to finance the purchase.

What will be the market value of RRE if the purchase if financed with debt?

Construct RRE's market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm's stock?

4. Which method of financing maximizes the per-share stock price of RRE's equity?

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