McDonald's had a current share price of $47, and the firm had 600,000 shares of stock...
McDonald's had a current share price of $47, and the firm had 600,000 shares of stock outstanding. The company is considering an investment project that requires an immediate $15,000,000 investment but will produce a single cash flow of $18,600,000 after 2 years then close. If McDonald's invests in the project, what would the new share price be? McDonald's cost of capital is 12%. (Hint: consider how the project NPV creates or destroys wealth of shareholders)
$47.00
$48.32
$46.71
$50.18
$45.92
Homework Answers
ANS $ 46.71
| Year | Project Cash Flows (i) | DF@ 12% (ii) | PV of Project A ( (i) * (ii) ) |
| 0 | -15000000 | 1 | (1,50,00,000.00) |
| 1 | 0 | 0.893 | - |
| 2 | 18600000 | 0.797 | 1,48,27,806.12 |
| CASH INFLOW | (1,72,193.88) | ||
| PER SHARE LOSS | NET CASH FLOW / NO OF SHARES | ||
| (172194) /600000 | |||
| -0.28699 | |||
| PRICE OF SHARE | OPENING PRICE - LOSS ON INVESTMENT | ||
| 47- 0.28699 | |||
| $ 46.71 | |||
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