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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

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.

Q7. If the firm issues the new shares at P* = 25 per share to finance the project, what is the expected return for new shareholders?

14.96%

16.18%

12.94%

13.44%

14%

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