Question
ABC Corporation is considering an investment that has the same P/E ratio as the firm. The cost of the investment is $500,000, and it will
ABC Corporation is considering an investment that has the same P/E ratio as the firm. The cost of the investment is $500,000, and it will be financed with a new equity issue. The return on the investment will equal ABCs current ROE. Some recent financial information for the company is shown here:
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|
|
|
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| Stock price | $ | 75 |
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| Number of shares |
| 50,000 |
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| Total assets | $ | 6,500,000 |
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| Total liabilities | $ | 2,100,000 |
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| Total Equity | $ | 4,400,000 |
|
| Net income | $ | 650,000 |
|
What will happen to the book value per share? What is the reason behind this change?
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International Financial Management
Authors: Jeff Madura, Roland Fox
5th Edition
1473770505, 978-1473770508
