The Zuma Company stock currently has earnings per share of $6.00 and 1

million shares outstanding. The company expects earnings to grow at 2%

indefinitely. It pays out all earnings as dividends. The company has a new

investment opportunity that requires $3million of initial investment. The project is

expected to generate a fixed $600,000 of after-tax cash flows per year for the

indefinite future. The company's required rate of return is 12%.

TAM521 Module 2 Individual Assignment

3

a. What is the stock value per share assuming the firm does not undertake the

new investment opportunity?

b. What is the net present value (NPV) of the new investment opportunity?

c. What will be the value per share if the firm undertakes the new investment

opportunity?

TAM521 Module 2 Individual Assignment

3

a. What is the stock value per share assuming the firm does not undertake the

new investment opportunity?

b. What is the net present value (NPV) of the new investment opportunity?

c. What will be the value per share if the firm undertakes the new investment