(c) Spira plc. is considering an investment that requires the issuance of 75,000 new shares. It currently has earnings per share of 30 pence and this is not expected to change because of undertaking the new investment. A company in the same risk class has a price-to-earnings ratio of 8:1. What is the maximum amount of finance that Spira can raise from such an issue?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.