Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please answer this question, also let me know if there is any way to do this question on a financial calculator ? AMS Company has
Please answer this question, also let me know if there is any way to do this question on a financial calculator ?
AMS Company has unexpectedly generated a one-time extra $6 million in cash flow this year. After announcing the extra cash flow, AMS stock price was $45 per share (it has 1 million shares outstanding). The managers are considering spending the $6 million on a project that would generate a single cash flow of $6.5 million in one year, which they would then use to repurchase shares. Assume the cost of capital for the project is 15%. a. If they decide on the investment, what will happen to the price per share? b. If they instead use the $6 million to repurchase stock immediately, what will be the price per share? c. Which decision is better and whyStep 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