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TechTack, Inc., has reported earnings of $8 million. It is expected that earnings will grow at 2 percent each year in perpetuity if the firm
TechTack, Inc., has reported earnings of $8 million. It is expected that earnings will grow at 2 percent each year in perpetuity if the firm undertakes no new investment opportunities. There are 2 million shares of common stock outstanding. The firm has a new project that needs an immediate investment of $3million. The new project will produce annual earnings of $1.5million in the subsequent 20 years. The required rate of return on the stock is 10%. a) What is the price of the stock if the firm does not undertake the new project? b) Is it worthwhile to undertake the new project? Calculate NPV of the new project. c) What is the price of the stock if the firm undertakes the new project
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