What is the value of the investment

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Question - Yorkshire Property Ltd expects to earn £60 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest £10 million today and £12 million in one year in real estate. The new investment will generate annual earnings of £15 million in perpetuity, beginning 2 years from today. The firm has 10 million shares outstanding, and the required rate of return on the equity is 12 per cent. Land investments are not depreciable. Ignore taxes.

(a) What is the share price if the firm does not undertake the new investment?

(b) What is the value of the investment?

(c) What is the share price if the firm undertakes the investment?

Reference no: EM132747397

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