The annual earnings of Avalanche Skis Inc. will be $$4$ per share in perpetuity if the

firm makes no new investments. Under such a situation, the firm would pay out all

of its earnings as dividends. Assume that the first dividend will be received exactly

one year from now.

Alternatively, assume that three years from now, and in every subsequent year in

perpetuity, the company can invest $25\%$ of its earnings in new projects. Each

project will earn $40\%$ at year$-$end, in perpetuity. The firm$$s discount rate is $14\%.$

a$)$ What is Avalanche$$s share price today without the new investment?

b$)$ If Avalanche announces that the new investment will be made, what will the

per$-$share stock price be today