Why does the ceos concern make sense

Assignment Help Finance Basics

Reference no: EM133332136

Question: A firm is evaluating a project that concerns doubling production capacity. The firm's current earnings are $10 million per year. The project will take three years to finish and will increase earnings to $20 million per year afterwards. The project needs to be financed by issuing equity today. The firm has 1 million shares outstanding. Funding the project requires issuing 250,000 shares. The CEO says he is against funding the project. In his words: "Issuing equity to fund this project will increase the number of shares outstanding from 1 million to 1,250,000, and thus reduce our earnings per share from $10 to $8, a reduction of 20% in earnings per share. This will depress our stock price." Does the CEO's concern make sense?

Reference no: EM133332136

Questions Cloud

What will be the alpha of this fund in the capm : What will be the alpha of this fund in the CAPM (on an annual basis)? Report your answer in percentage points rounded to the nearest tenth of a percentage point

Discuss two techniques or strategies : Discuss at least two techniques or strategies that you can use as a leader to coach or mentor those involved in your scenario going forward.

What does a fall in price of an abx index mean : What does a fall in price of an ABX index mean for someone who has bought protection? Specifically, what does it mean for the market value of their position

What does put-call parity imply about the price of the put : Use the Black and Scholes model to calculate the price of the Call option. What does Put-Call parity imply about the price of the Put with a strike price of $10

Why does the ceos concern make sense : Issuing equity to fund this project will increase the number of shares outstanding from 1 million to 1,250,000, and thus reduce our earnings per share from $10

Analyze stages of group development teams : Analyze the stages of group development the teams should expect to experience. Discuss at least three recommendations to help make these teams effective.

What is the price of a 0.75 year european put option : What is the price of a 0.75 year European put option on a dividend-paying stock, where the stock price is $ 57, the strike price is $ 67, and a dividend

Clearly state the internal audit engagement objective : Clearly state the internal audit engagement objective. Prepare one or more well-written internal audit observations that include: condition, criteria

Theory to motivate your employees : Describes how you would use each theory to motivate your employees.

User Account

All Pages