A company is considering issuing additional shares of common stock to finance a new project. The company’s current capital structure consists of 60% debt and 40% equity, and its cost of equity is 12%. The company expects the new project to generate cash flows of $ 10 million per year for the next 10 years. If the company issues 1 million new shares of common stock at a price of $50 per share, what will be the impact on the company’s earnings per share (EPS) and stock price, and how will it affect the value of the company. Explain fully.

A company is considering issuing additional shares of common stock to finance a new project. The company’s current capital structure consists of 60% debt and 40% equity, and its cost of equity is 12%. The company expects the new project to generate cash flows of $ 10 million per year for the next 10 years. If the company issues 1 million new shares of common stock at a price of $50 per share, what will be the impact on the company’s earnings per share (EPS) and stock price, and how will it affect the value of the company. Explain fully.

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Description: A company is considering issuing additional shares of common stock to finance a new project. The company’s current capital structure consists of 60% debt and 40% equity, and its cost of equity is 12%. The company expects the new project to generate c

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 22P

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