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.

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Definitions:

Down Payment

An initial upfront portion of the total amount due, often associated with the purchase of expensive goods like homes or cars, which is paid at the time of the sale.

Term Deposit

A deposit at a financial institution that has a fixed term and typically offers a higher interest rate than a regular savings account.

Simple Interest

A method of calculating interest where the charge is based on the original principal amount alone, without compounding.

Interest

Interest is the cost of borrowing money, typically expressed as a percentage of the principal amount.