What is price at which firm needs to issue the new share

Assignment Help Finance Basics

Reference no: EM131327756

An all-equity firm has 100,000 shares outstanding worth $10 each. The firm is considering a project that requires an investment of $400,000 and has an NPV of $50,000. The company is also considering financing this project with a new issue of equity.

a. What is the price at which the firm needs to issue the new shares so that the existing shareholders are indifferent to whether the firm takes on the project with this equity financing or does not take on the project?

b. What is the price at which the firm needs to issue the new shares so that the existing shareholders capture the full benefit associated with the new project?

Reference no: EM131327756

Questions Cloud

Compute the expected payoff for each project : Compute the expected payoff for each project and state which one you would adopt if you were operating the firm in the shareholders' best interests? Why?

What are the basic principles of gestalt psychology : What are the basic principles of Gestalt psychology, and why was it important in the early life of psychology? What areas do you think were the Gestalt principles and avenues of research best suited for in modern psychology

Which project would bondholders prefer and why : Assuming that the investors are concerned only about expected returns, which project would stockholders prefer? Why? Which project would bondholders prefer? Why?

How will the headhunter find applicants : Kforce, Inc. is a top professional staffing agency. They have been selected to assist the Mayo Clinic in hiring a system-wide CIO (chief information officer) due to the difficulty the human resources division has had trying to fill this job.There ..

What is price at which firm needs to issue the new share : What is the price at which the firm needs to issue the new shares so that the existing shareholders capture the full benefit associated with the new project?

Find the rate of change of force with respect to distance : Find the rate of change of force with respect to distance.

Would you accept the project if the firm were unlevered : Assuming that you are operating the firm in the shareholders' best interests, would you accept the project? Why or why not?

Which supplies prepared meals for corporate aircraft : Meals on Wings Inc., which supplies prepared meals for corporate aircraft, needs to purchase new broilers. The new broilers would replace broilers purchased 10 years ago for $105,000, The new broilers will occupy space currently leased to another fir..

Compute the value of magnum : Magnum Enterprises has net operating income of $5 million.- Compute the value of Magnum, assuming that the present value of bankruptcy costs are $10 million.

User Account

All Pages