Use the Information for the Question(s)below

question 15

Multiple Choice

Use the information for the question(s) below.
Electronic Gaming Incorporated (EGI) is a firm with no debt and its 20 million shares are currently trading for $16 per share.Based on the prospects for EGI's new handheld video game,management feels the true value of the firm is $20 per share.Management believes that the share price will reflect this higher value after the video game is released next fall.EGI has already announced plans to raise $100 million from investors to build a new factory.
-Assume that EGI decides to raise the $100 million through the issuance of new shares prior to the release of the new video game.The number of new shares that EGI will issue is closest to:

• A)5.0 million.
• B)6.25 million.
• C)10 million.
• D)1.6 million.

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Definitions:

Total Cost

The sum of all costs required to produce a certain amount of a good or service, including fixed and variable costs.

Duopoly

A two-firm oligopoly.

Demand Curve

A graph depicting the relationship between the price of a good and the quantity demanded by consumers, typically sloping downwards from left to right.

Competing Firm

A company that produces goods or services that are similar to those of another company, thereby participating in the same market.