Question
1.Corporation X is expected to earn $100 million per year in perpetuity if it does not undertake any new projects.The firm has an opportunity that
1.Corporation X is expected to earn $100 million per year in perpetuity if it does not undertake any new projects.The firm has an opportunity that requires an investment of $15 million today and another $5 million in one year.The investment will begin to generate additional earnings of $10 million two years from now and will last forever.The firm has 20 million shares of stock outstanding and the required rate of return is 15%.
a.What is the price per share if they do not make the investment?
b.What is the value of the growth opportunities resulting from the new project?
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