(Answered) The dr motor car company has 100 shares of stock

Finance

The DR motor car company has 100 shares of stock outstanding. The net earn- ings of the company are $5,000 per year, continuing forever. The firm announces that one year from now the company will have an opportunity to pay $1,000 to begin the con- struction of a new plant. One year after construction begins, the plant will generate addi- tional net earnings equal to $330/year. These additional earnings will continue forever.

Determine:

(a) The net present value of the project.

(b) The new equilibrium price of a share if the firm finances the project by issuing new shares when the construction of the plant begins.

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