VIII) ABC company is expected to earn $2 million in perpetuity if it undertakes no new investment opportunities. There are 200,000 shares outstanding. The companys discount rate is 10 percent. Suppose the firm pays all of the earnings as dividends, what would be the value of the company now? Suppose the company announces to the world that they plan to spend $2,000,000 million on date 1 and the expected increase in earnings is $200,000 per year in every subsequent period forever. What would be the new value per share once the company makes an announcement about the new project? (10 points) Earnings Per share= 2,000,000/200,000=$10 r = 10% Current Price= 10/0.1=$100 0 1 2 3 |------------|-------------------------|----------------|-------------- infinity -$2,000,000 $200,000 $200,000 NPVt=1= - $2,000,000 + $200,000/0.1 =0 NPV t=0 = 0/1.1=0 NPVGO = 0/200,000=0 So, there will be no change in the value per share. It will still be $100. Pls explain why the value of the company will not change after the investment and additional increase in earnings as per above which is the solution provided by my professor