Replicator East Inc. is an all equity firm with 20 million outstanding shares currently priced at $50 per share. Stock required return is 15%. Replicator tax rate is 25%. Replicator is considering a westward expansion that will require $400 million investment and generate a pretax operating income of $100 million in perpetuity. Replicator can borrow any amount at 8%.

a. If the firm decides on an all equity financing, how many shares do you expect they will need to sell? (First compute the project NPV, its contribution to the firm value, the new share price once the expansion is announced, and only after that, compute the required number of new shares)

b. Evaluate the share value, if the firm pursues debt financing. (use the firm value from a, add the debt tax shield, revalue the price per share.)