What is the price of a share of stock if the firm does not

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California Real Estate, Inc., expects to earn $110 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest $12 million today and $7 million in one year in real estate. The new investment will generate annual earnings of $10 million in perpetuity, beginning two years from today. The firm has 20 million shares of common stock outstanding, and the required rate of return on the stock is 15 percent. Land investments are not depreciable. Ignore taxes.

a. What is the price of a share of stock if the firm does not undertake the new investment?

b. What is the value of the investment?

c. What is the per-share stock price if the firm undertakes the investment?

Reference no: EM13574632

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