Firm C has the following: $50,000,000 $15,000,000 2,500,000 $20 $3,000,000 Firm C will take on a new project that costs $2,000,000. The project will be funded with a new equity issue and will have the same PE ratio as the firm. The expected ROE of the project is equal to the firm's current ROE. Calculate the new EPS1 if the investment is undertaken. Total Assets Total Liabilities Shares Outstanding Current Price Per Share Net Income $1.3 $1 $0.85 $0.7 $1.15

Firm C has the following: $50,000,000 $15,000,000 2,500,000 $20 $3,000,000 Firm C will take on a new project that costs $2,000,000. The project will be funded with a new equity issue and will have the same PE ratio as the firm. The expected ROE of the project is equal to the firm's current ROE. Calculate the new EPS1 if the investment is undertaken. Total Assets Total Liabilities Shares Outstanding Current Price Per Share Net Income $1.3 $1 $0.85 $0.7 $1.15

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Better plc is comparing two mutually exclusive projects, whose details are given below.The company’s cost of capital is 12 per cent.Project A Project B£m £mYear 0 (150) (152)Year 1 40 80Year 2 50 80Year 3 60 50Year 4 60 40Year 5 80 30(a). Using the net present value method, which project should be accepted?(b). Using the internal rate of return method, which project should be accepted?(c). If the cost of capital increases to 20 per cent in year 5, would your advice change?
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