Crazy Cryptography is a software corporation that has 1,000 shares of stock in existence.The corporation has just surprised the market by announcing a new software package that will increase the company's after-tax profit by $500,000 each year,forever.If the interest rate is 8 percent (0.08)per year,by how much will the value of a single share of stock increase?

Question

Quizplus · Accepted Answer

The value of a single share of stock will increase by $6,250.00. This is because the new software package will increase the company's after-tax profit by $500,000 each year, forever. This means that the company's stock is now worth more because it is expected to generate more income in the future. The value of a single share of stock is determined by dividing the total value of the company's stock by the number of shares outstanding. In this case, the total value of the company's stock is $500,000 * 8% = $40,000. The number of shares outstanding is 1,000. Therefore, the value of a single share of stock is $40,000 / 1,000 = $40. The value of a single share of stock has increased by $40 - $33.75 = $6.25.

Crazy Cryptography Is a Software Corporation That Has 1,000 Shares