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A company had earnings last year of $4 million with 500,000 shares of stock outstanding. Earnings are expected to remain constant into perpetuity and the required return is 15%. The company pays all earnings as dividends. If dividends are paid at the end of the year, the price per share of stock is $53.33. They decide to produce a new product. The project requires an immediate outlay of $6 million. In one year, another outlay of $3 million will be needed. The year after that, earnings will increase by $2 million. That profit level will be maintained in perpetuity. What will the new share price of the stock be? Please show formulas so I can follow.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92707270

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