A company has current annual profits of $500,000. These annual profits are expected to continue...
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A company has current annual profits of $500,000. These annual profits are expected to continue in real terms forever. Because the company has no depreciation the cash flows are expected to be $500,000 forever. The company is all equity with 40,000 shares outstanding. The appropriate discount rate on the stock is 12%. The company has an investment growth opportunity which will have a PV of 2,000,000 and will cost $550,000 as a cash outflow to make the investment. Assume all cash flows are at the end of the year, what will the price per share be after the investment?
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