A business has issued ordinary shares 30 million $0.10 shares. On June 10 the Stock Exchange closing price of the shares was $1.50. Early on the morning of June 11, the business publicly announced that it had just secured a new contract to build some hotels in the Middle East. The new contract requires an initial investment of $10 million and is expected to generate the following cash flows over the next 5 years: Year 1 2 3 4 5 CF 2.00 3.00 5.00 5.60 6.64 On 12 June, the business announced its intention to raise the necessary money to finance the work, through a rights issue priced at $1.00 per share. Required: A. Calculate the net present value of the new contract. Assume a required rate of return of 10%.

determine the theoretical value of the right to buy one new share assume that the events described above were the only influence on the share price