Pearson is currently selling at 50 a share and has 1 million shares outstanding. The 50 share price reflects its current business, valued at 40 million, and an opportunity to take on an investment valued at 30 million, which costs only 20 million. The opportunity can be viewed as an asset with a 10 million NPV. The management of Pearson has discovered a vast amount of oil, worth 50 million, on its property. This fact is unknown to shareholders and thus is not reflected in Pearsons current share price. If information about this oil were known to shareholders, its shares would sell for 100 a share. Unfortunately, management has no way to reveal this information directly to the market, so expects that its shares will be undervalued for some time. a) Suppose that the firm can fund its new investment only with equity by issuing shares at 50 a share. How will this affect the intrinsic value of the firms existing shares? Will the current shareholders accept the new investment? b)Suppose that the firm can fund its new investment issuing debt. How will this affect the intrinsic value of the firms existing shares? c) Suppose that the management finds a way to reveal the information about the oil on its property to the market. Will the firm finance the project with debt or equity? Why? d) What is the stock price that would make old shareholders indifferent between financing and taking the project with equity and doing nothing?

is the share price when the firm passes up the project and the information about the new field is revealed 90 million (40 million of its business + 50 million of oil)?