What is the value of the share to snow

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Reference no: EM133032908

The annual earnings of Avalanche will be 6NOK per share in perpetuity if the firm makes no new investments. Under such a situation the firm would pay out all of its earnings as dividends. Assume the first dividend will be received exactly one year from now. Alternatively, assume that 3 years from now, and in every subsequent year in perpetuity, the company can invest 25 percent of its earnings in new projects. Each project will earn 40 percent at year-end in perpetuity. The firm's discount rate is 14 percent. a. What is the share price of Avalanche today without the company making the new investment? b. If Avalanche announces that the new investment will be made, what will be the share price today? c. Before the announcement, investor Snow had expected the announcement, but not the market. i. What is the value of the share to Snow? In the market? ii. What type of market inefficiency is depicted in this situation?

Reference no: EM133032908

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