Question
Telford Co is a listed company which has 400 million ordinary shares in issue. Yesterday the ordinary share price closed at $5.00. Two days earlier,
Telford Co is a listed company which has 400 million ordinary shares in issue. Yesterday the ordinary share price closed at $5.00. Two days earlier, the board of directors approved the launch of two new innovative products, but this has not been publicly announced.
o Product A has an NPV of $40m. The decision to launch product A will be announced publicly tomorrow.
o Product B has an NPV of $160m. The decision to launch product B will be announced publicly this morning.
Assume all other things are equal and that the capital markets believe the projected NPVs. Both products will be financed using internally generated funds.
What will the ordinary share price be at the end of today if the capital market is (1) semi- strong form efficient and (2) strong form efficient?
Semi-strong from efficient
Strong form efficient
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