Question
For an upfront cost of $12 million dollars, the CEO of Totally Legit promises to develop a drug with amazing potential. Though it will take
For an upfront cost of $12 million dollars, the CEO of Totally Legit promises to develop a drug with amazing potential. Though it will take 8 years before any cash flows are expected, he predicts that after-tax cash flows for each year after that will be $10 million per year for 10 years. Currently, the firm's shares (priced at $11.25 each) are expected to pay an annual dividend of $0.92 next year, with dividend growth expected to average 5.5% from that point forward.
If there are 10,000,000 shares outstanding for Totally Legit, estimate the percent price increase that this announcement should generate.
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