Question 5 Electronic Gaming Incorporated (EGI) is a firm with no debt and its 20 million shares are currently trading for $16 per share. Based on the prospects for EGI's new hand held video game, management feels the true value of the firm is $20 per share. Management believes that the share price will reflect this higher value after the video game is released next fall. EGI has already announced plans to raise $100 million from investors to build a new factory. 1. Assume that EGI decides to raise the $100 million through the issuance of new shares prior to the release of the new video game. How many shares do they need to issue? 2. 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 shares do they need to issue in this case? (Hint: you may want to make an assumption on how the market reacts to the information release.) 3. What is the share price of the company if it issues shares prior to the release of the new video game? What is the share price if instead the company waits to issue shares after the release? Carefully explain your results. 28 marks