Question
Supersoftware, Inc. earns a total of $145 million each year to pay out to their 1 million shareholders. They are in a very competitive business
Supersoftware, Inc. earns a total of $145 million each year to pay out to their 1 million shareholders. They are in a very competitive business and have found it a struggle to come up with new ideas. They have however just uncovered a new innovation that will involve a one-time investment one year from now (t = 1) of $237 million for a system upgrade, resulting in extra cash flows that will stay constant at $32 million per year starting the following year (t = 2) and lasting forever. If Supersoftware's cost of equity capital (the discount rate for equity) is 19.5%, by how much will this new idea change their price per share? Think carefully. You are encouraged to use a spreadsheet.
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