Megacapital co generates 5 per share in earnings and it has

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Reference no: EM13620821

Megacapital Co. generates $5 per share in earnings and it has 1,000,000 shares outstanding. Since MegaCapital has no growth opportunities, it pays out all of its earnings as dividends. This situation is expected to last into the foreseeable future. Suppose that just as the new year starts, a new, unexpected investment opportunity becomes available to MegaCapital. If MegaCapital invests, it will need to pay $5 million at the end of the current year, and will have cash inflows of $4 million and $6 million at the end of the following two years. What is the price of a share in MegaCapital after investors find out about the new investment opportunity?

Reference no: EM13620821

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