Question

Green Footwear had a current share price of $24.72, and the firm had 1,800,000 shares of stock outstanding. The CEO of the company is considering an investment project that he is confident will result in an NPV of $1,500,000. However, investors are pessimistic about the project's prospect and believe that the project would result in an NPV of -$900,000 instead. If the CEO decides to go ahead with the project and the negative NPV as expected by investors is realized, what would the new stock price be? (Hint: consider how the project NPV can create or destroy wealth of shareholders)

$25.50

$24.78

$26.17

$25.06

$24.22

Answer 1

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12 e 9 Ovo T* = 06-08 ENG 23-01-2020 ENG » - 14 X 0248 K L M N O P Q R S a 234 235 236 237 238 CURRENT SHARE PRICE = NO OF SHARES = 24.72 1800000 IF PROJECT HAS NEGATIVE NPV NPV = -900000 239 240 EFFECT ON PRICE PER SHARE = -0.5 (-90000/1800000] 241 242 243 ANSWER NEW PRICE WILL BE = 24.72 -0.5 = 24.22 244 245 246 247 248 249 250 251 252 253 254 255 IRRnpvbeta RATIO PI PBP ARR invest, EAA Mi-mp-ir REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BONC ... ►