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What stock value per share assuming firm does not undertake

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Reference no: EM132939870

The Zuma Company stock currently has earnings per share of $6.00 and 1 million shares outstanding. The company expects earnings to grow at 2% indefinitely. It pays out all earnings as dividends. The company has a new investment opportunity that requires $3million of initial investment. The project is expected to generate a fixed $600,000 of after-tax cash flows per year for the indefinite future. The company's required rate of return is 12%.

Problem a. What is the stock value per share assuming the firm does not undertake the new investment opportunity?

Problem b. What is the net present value (NPV) of the new investment opportunity?

Problem c. What will be the value per share if the firm undertakes the new investment opportunity?

Reference no: EM132939870

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