Arthur Rhodalyn Shipping Ltd. expects to earn $1 million per year in perpetuity if it undertakes no new investment opportunities. There are 100,000 shares outstanding, so EPS is $10 (or $1,000,000/100,000). The firm will have an opportunity at date 1 to spend $1,000,000 on a new marketing campaign. The new campaign will increase earnings in every subsequent period by $210,000 (or $2.10 per share). This is a 21 percent return per year on the project. The firm’s discount rate is 10 percent. What is the value per share before and after deciding to accept the marketing campaign?
Arthur Rhodalyn Shipping Ltd. expects to earn $1 million per year in perpetuity if it undertakes no new investment opportunities. There are 100,000 shares outstanding, so EPS is $10 (or $1,000,000/100,000). The firm will have an opportunity at date 1 to spend $1,000,000 on a new marketing campaign. The new campaign will increase earnings in every subsequent period by $210,000 (or $2.10 per share). This is a 21 percent return per year on the project. The firm’s discount rate is 10 percent. What is the value per share before and after deciding to accept the marketing campaign?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Arthur Rhodalyn Shipping Ltd. expects to earn $1 million per year in perpetuity if it undertakes no new investment opportunities. There are 100,000 shares outstanding, so EPS is $10 (or $1,000,000/100,000). The firm will have an opportunity at date 1 to spend $1,000,000 on a new marketing campaign. The new campaign will increase earnings in every subsequent period by $210,000 (or $2.10 per share). This is a 21 percent return per year on the project. The firm’s discount rate is 10 percent. What is the value per share before and after deciding to accept the marketing campaign?
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