1. Electronic Gaming Incorporated (EGI) is a firm with no debt and its 20 million shares are currently trading at $16 per share. EGI has developed a new video game (not yet announced to the public), and the firm management knows that this newly developed game will increase firm value: the updated value of the firm should be $20 per share. The new (higher) valuation will be reflected into the stock prices immediately after the news about video game is released. EGI has already announced plans to raise $100 million from investors to build new stores.

   (a) Assume that EGI decides to raise the $100 million through the issuance of new shares prior to the news release of the newly developed video game: How many new shares EGI will issue? And what will be the price per share following the release of the new video game?

(b) Assume that EGI decides to wait until after the release of the new video game before they raise the $100 million through the issuance of new shares: how many new shares EGI will issue? And what will be price per share following the release of the new video game?