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Suppose that currently equity of company NewOrange is priced at $40 per share, and normal annual equity rate of return (based on the riskiness of
Suppose that currently equity of company NewOrange is priced at $40 per share, and normal annual equity rate of return (based on the riskiness of the companys equity) is 8%. Now suppose that new information concerning expected future cash flows of the company become available which causes investors to adjust their expectations about the share price in one year to $50. What is going to happen to the share price right now? Compute the new price. Please provide your solution in the box below.
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