With annual earnings of $32.5 million every year, Durango Data was confident that this amount of profit could be sustained indefinitely if it simply maintained its current portfolio of assets and avoided any new projects. But Durango is approached by a data warehouse technology company with an opportunity for Durango to invest $29 million today; and $45 million one year from now in a new product that requires technical development and regulatory approval. The new investment will generate annual after-tax cash flow of $17 million in perpetuity starting three years from today. Durango has 14.0 million shares outstanding and the required rate of return on the stock is 11%. What would Durango's new stock price ($ per share) be if the Board approves the investment? $21.93 $24.98 $20.26 $25.10 $21.53

With annual earnings of $32.5 million every year, Durango Data was confident that this amount of profit could be sustained indefinitely if it simply maintained its current portfolio of assets and avoided any new projects. But Durango is approached by a data warehouse technology company with an opportunity for Durango to invest $29 million today; and $45 million one year from now in a new product that requires technical development and regulatory approval. The new investment will generate annual after-tax cash flow of $17 million in perpetuity starting three years from today. Durango has 14.0 million shares outstanding and the required rate of return on the stock is 11%. What would Durango's new stock price ($ per share) be if the Board approves the investment? $21.93 $24.98 $20.26 $25.10 $21.53

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

Problem 1PS

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