Firm A has 10 shares. The present value (PV) of the firm is 500, i.e., 50 per share. It has an investment opportunity requiring a costly investment of £X but it must sell new shares to raise this in order to take this opportunity. If it succeeds in issuing and investing, the end period firm PV will be 800 (including the cash raised by any new issue). If the current market price of a share is 33.33, what is the highest investment cost that will allow the project to proceed?
Firm A has 10 shares. The present value (PV) of the firm is 500, i.e., 50 per share. It has an investment opportunity requiring a costly investment of £X but it must sell new shares to raise this in order to take this opportunity. If it succeeds in issuing and investing, the end period firm PV will be 800 (including the cash raised by any new issue). If the current market price of a share is 33.33, what is the highest investment cost that will allow the project to proceed?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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H4.
Firm A has 10 shares. The present value (PV) of the firm is 500, i.e., 50 per share. It has an investment opportunity requiring a costly investment of £X but it must sell new shares to raise this in order to take this opportunity. If it succeeds in issuing and investing, the end period firm PV will be 800 (including the cash raised by any new issue).
If the current market price of a share is 33.33, what is the highest investment cost that will allow the project to proceed?
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