I would appreciate someone giving a complete solution to this problem. DO NOT CO
ID: 2775661 • Letter: I
Question
I would appreciate someone giving a complete solution to this problem. DO NOT COPY FROM COURSEHERO PLEASE !!!!
A firm expects to earn SI million per year in perpetuity if no new investment is made. The firm has 100,000 shares outstanding. One year from today, the firm can spend $1m for a marketing campaign. This new campaign will increase earnings the following year and every year thereafter by $210,000. Assume the cost of capital, r, is 10%. What is the current stock price of the firm (i.e. w/o the new investment)? What is the new stock price if this one-time investment is made? What percent of the new stock price is due to the PYGO?Explanation / Answer
1. current stock price= $1million / no of shares
=$1million/100000
=$10000
2. New Stock Price is = $cost of capital/No.of shares
=10002.1
3. 10002.1/10000*100
=0.021