Suppose you completely own a firm whose existing project, Ask an Expert

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Suppose you completely own a firm whose existing project will generate $2M for the next 3 years and will then be worthless. A new project is currently available that will generate $3M for the next 3 years. You need to raise $5M to start this project. Assume that the new project is public information and the market is efficient.

a) What percentage of the firm would you have to sell to an investor to raise this $5M? Assume a zero discount rate.

b) Suppose the manager distributes all cash inflows in the form of dividends. How much does the new investor receive per year?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92792500

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