Winston's has 12,500 shares outstanding with a market value of $288,625. The company is considering a project with a net present value of $5,300 that would require the purchase of $69,000 of fixed assets. The project would be financed through the sale of equity shares. The price-earnings ratio of the project equals that of the existing firm. What will the new market value per share be after the project is implemented?

Question

Quizplus · Accepted Answer

The initial market value per share is calculated as follows:

Market value per share = Total market value / Number of shares outstanding

Market value per share = $288,625 / 12,500 = $23.09

After the project is implemented, the new market value per share can be calculated as follows:

Total market value = Initial market value + Present value of project

Total market value = $288,625 + $5,300 = $293,925

Number of shares outstanding = Initial number of shares

New market value per share = Total market value / Number of shares outstanding

New market value per share = $293,925 / 12,500 = $23.43

Therefore, the new market value per share after the project is implemented would be $23.43 (option D).

Winston's Has 12,500 Shares Outstanding with a Market Value of $288,625