What is the expected cash flow to merrimack shareholders

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Reference no: EM131571398

1. Merrimack Inc., had a current share price of $50, and the firm had 1,000,000 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 $20,000,000 after 2 years then close. If Merrimack invests in the project, what would the new share price be? Merrimack's cost of capital is 10%. (Hint: consider how the project NPV affects the stock price)

2. Merrimack, Inc., is considering an investment project that generates a cash flow of $1,900,000 next year if the economy is favorable but generates only $900,000 if the economy is unfavorable. The probability of favorable economy is 60% and of unfavorable economy is 40%. The project will last only one year and be closed after that. The cost of investment is $1,500,000 and Merrimack plans to finance the project with $400,000 of equity and $1,100,000 of debt. Assuming the discount rates of both equity and debt are 0%. What is the expected cash flow to Merrimack s shareholders if the company invests in the project?

3. One year ago, John Doe bought 10,000 shares of Galaxy Entertainment Company at $50 per share. His purchase represents 20 percent ownership in the firm. Today s market value per share is $60. If Galaxy Entertainment is bankrupt and owes $200,000 more in debts than the firm can pay after liquidating all of its assets, what is the maximum loss per share John Doe will incur on this investment?

Reference no: EM131571398

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