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A company recently issued a prospectus to raise 3 million dollars. The issue involved ordinary shares at a subscription price of $1 and the 3
A company recently issued a prospectus to raise 3 million dollars. The issue involved ordinary shares at a subscription price of $1 and the 3 million shares were fully subscribed. The prospectus stated that the funds would be invested in a similar risk project to those undertaken previously by the company. The company estimated that the net cash inflows related specifically to the project have expected after tax flows of Year-1: $1,900,000 and Year-2: $1,800,000. The Investment undertaken at the beginning of year-1 involves a one off outlay of $3,000,000. Assuming shareholders require a rate of return of 14%. Ignore other operations or financing of the company. Find the following: i. The estimated price per share in year after investing in the project = ii. The value of the firm after investment decision =
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