Use the Information for the Question(s)below

question 84

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.EGI's share price following the release of the new video game will be closest to:

• A)$18.00.
• B)$19.00.
• C)$20.00.
• D)$16.00.

---

Definitions:

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity or the current price of a market-traded security.

Covenants

Agreements or clauses within financial contracts that impose certain conditions or restrictions on the parties involved.

Lender Fraud

Illegal practices committed by a lender, including deceptive actions to take advantage of a borrower or to approve a loan under false pretenses.

Premium On Bonds Payable

The amount by which a bond's selling price exceeds its face value, reflecting higher market interest rates at the time of issuance.