Stand Still Co. has been earning $1 per share on 400,000 shares, and paying out all of the earnings. The discount rate for a company of this risk is 10%. The company has an investment opportunity with a cost of $1,500,000 and expects to earn $230,000 after taxes, but they must reinvest 35% of these earnings to continue to maintain the expansion in earnings. What is the value of the company without the investment and what is the value with the investment?

Answer:$4,000,000; $3,995,000

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