A firm currently has 900,000 shares of common stock outstanding. If the firm does not raise...
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A firm currently has 900,000 shares of common stock outstanding. If the firm does not raise any new funds, the true value of each of these shares is $100 per share. The firm is contemplating selling equity to purchase a machine that costs $9,000,000 and generates a cash flow with a present value of $11,000,000 after the purchase (i.e. the NPV is +$2,000,000). Unfortunately, because managers expect that the market will misinterpret an equity issue announcement as a signal that the firm's shares are overvalued, managers anticipate they can only sell new shares at a price of $90 per share. Assuming the market eventually prices the firm's stock correctly, what will the long-run stock price be if the firm issues equity and invests in the machine? (Ignore issues such as taxation and transactions costs) A firm currently has 900,000 shares of common stock outstanding. If the firm does not raise any new funds, the true value of each of these shares is $100 per share. The firm is contemplating selling equity to purchase a machine that costs $9,000,000 and generates a cash flow with a present value of $11,000,000 after the purchase (i.e. the NPV is +$2,000,000). Unfortunately, because managers expect that the market will misinterpret an equity issue announcement as a signal that the firm's shares are overvalued, managers anticipate they can only sell new shares at a price of $90 per share. Assuming the market eventually prices the firm's stock correctly, what will the long-run stock price be if the firm issues equity and invests in the machine? (Ignore issues such as taxation and transactions costs) A firm currently has 900,000 shares of common stock outstanding. If the firm does not raise any new funds, the true value of each of these shares is $100 per share. The firm is contemplating selling equity to purchase a machine that costs $9,000,000 and generates a cash flow with a present value of $11,000,000 after the purchase (i.e. the NPV is +$2,000,000). Unfortunately, because managers expect that the market will misinterpret an equity issue announcement as a signal that the firm's shares are overvalued, managers anticipate they can only sell new shares at a price of $90 per share. Assuming the market eventually prices the firm's stock correctly, what will the long-run stock price be if the firm issues equity and invests in the machine? (Ignore issues such as taxation and transactions costs)
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Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
Posted Date:
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