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?