Question
A company is planning to issue 1 million shares at the price of $90 per share. It is expected that at the end of one
A company is planning to issue 1 million shares at the price of $90 per share. It is expected that at the end of one year, the company will pay a dividend of $6.30 per share and the one-year target share price will be $99 per share. What expected rate of return can you declare to potential investors? Would you invest in this company if opportunity cost of capital on the project with the same level of risk is equal to 13%? What if the opportunity cost of capital is 20%? Critically discuss your answer. Support your answer with the needed proper calculations.
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