Question
XI) XYZ company is expected to earn $2 million in perpetuity if it undertakes no new investment opportunities. There are 200,000 shares outstanding. The companys
XI) XYZ 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? I follow how to get the value of the company if you have 2 million in perpetuity but I dont understand how you calculate teh new value if you invest 2 million and increase earning to 200,000 per year. Can you pls explanin how and what formula to use
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