Question
Erwin Enterprises has 11.00 million shares outstanding with a current market price of $12.00 per share. There is one investment available to Erwin, and its
Erwin Enterprises has 11.00 million shares outstanding with a current market price of $12.00 per share. There is one investment available to Erwin, and its cash flows are provided below. Erwin has a cost of capital of 12.00 percent. Given this information, determine the impact on Erwins stock price and firm value if capital markets fully reflect the value of undertaking the project.
Initial cash outflow = $15,000,000.00
| YEAR | CASH INFLOW | |
| 1 |
| |
| 2 | $4,243,999.00 | |
| 3 | $5,081,995.00 | |
| 4 | $6,006,880.00 | |
| 5 | $7,207,250.00 | |
| 6 | $1,262,220.00 |
What will be the new price of Erwin stock?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Public Finance A Contemporary Application of Theory to Policy
Authors: David N Hyman
11th edition
9781305474253, 1285173953, 1305474252, 978-1285173955
