Question
Ramallah Real Estate Corporation expects to earn 8.5 million per year in perpetuity if it does not undertakes any new projects. The Company has an
Ramallah Real Estate Corporation expects to earn 8.5 million per year in perpetuity if it does not undertakes any new projects. The Company has an opportunity to invest 5 million today in Real estate . The new investment will generate annual earnings of $1 million in perpetuity beginning two years from today the firm has 2 million shares of common stock outstanding, and the required rate of return on the stock is 12%. Land investment is not depreciable. Ignore taxes. A. what is the price of the stock if the firm does not take the new investment. B. what is the value of the new investment( NPVGO). C. what is the price of the stock if the firm undertakes the new investment.
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