VR Manufacturing is considering two potentials investment projects. These projects are mutually exclusive and are equally risky. Both projects have the same cost of capital of 9.00%. The project cash flows are shown below. Calculate the projects NPV. If the investment decision is made by choosing the project with the shorter payback period rather the one with the higher NPV, how much value will be foregone?

0 1 2 3 4

CF (Project X) $2,500 $500 $500 $1,500 $1,50

CF (Project Y) $2,500 $1,000 $1,000 $1,000 $500

(b) You want to value a stock using the P/E ratio of comparable firms. The average P/E ratio of the industry is 22.5. The firm has a net income of $30 million, and the total share outstanding is 50 million shares. What is the value of the stock? (20 marks)

(c) Critically discuss the reasons of the shares of newly listed firms often increase on the first day of trading? (40 marks)