Acting on behalf of existing shareholders

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A firm with a current value (cost) of $800 and will return $1,000 next year. The firm also has a potential project that costs $500 and will return $550 next year, but the firm does not have the money to invest and must raise it from outside investors. However, outside investors mistakenly believe the firm will be worth $820 in one year without the project and $13,030 with the project. For simplicity, assume a zero discount rate. Does the project have a positive NPV? Acting on behalf of existing shareholders, should you take the project?

Reference no: EM132386431

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