A firm has no debt. Existing assets generate earnings (E) of $35 million per year forever. Discount rate is 14%. Firm has 12.5 million shares (n). Now firm plans to invest I=$15 million in a new project. The new project will generate $14 million in new earnings forever per year.

Q6. If the firm issues the new shares at P* = 25 per share to finance the project, what should happen to the price per share after the issuance?

		It should adjust downward and the price should converge to $23.11 per share.
		It should adjust upwards and the price should converge to $28.9 per share.
		It should adjust downwards and the price should converge to $24.20 per share.
		It should adjust upwards and the price should converge to $26.72 per share.