AMS Company has unexpectedly generated a one-time extra $4 million in cash flow this year. After announcing the extra cash flow, AMS stock price was 55 $ per share (it has 1 million shares outstanding). The managers are considering spending the $4 million on a project that would generate a single cash flow of $4.5 million in one year, which they would then use to repurchase shares. Assume the cost of capital for the project is 13 %.

a. If they decide on the investment, what will happen to the price per share?

b. If they instead use the $ million to repurchase stock immediately, what will be the price per share?

c. Which decision is better and why?