• Zybrid currently has earnings per share of $1.50, with 1 million shares outstanding. The annual dividend is equal to the EPS. This is expected to occur in perpetuity if the company makes no new investments.
• The company has decided to spend $1.5 million on a new project at Date 1, that will increase the earnings by $250,000. This represents a 16.7% return on the project.
• The firms discount rate is 12%.
• The NPV of the new project at Date 1 is: -$1,500,000 + $250,000/.12 = $583,333
• Discounted back for one period: the value of the project at Date 0: $583,333/1.12 = $520,833
• NPVGO per share = $520,833/1,000,000 = $0.52
• Price of share =