A Toronto fiRm Is Considering a New Project Which Requires

question 163

Multiple Choice

A Toronto firm is considering a new project which requires the purchase of $250,000 of new equipment. The net present value of the project is $100,000. 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 given the following current information on the firm?

• A) $6.86
• B) $7.94
• C) $8.00
• D) $8.08
• E) $8.76

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Definitions:

Stockholders' Equity

The portion of a company's assets that belongs to shareholders after deducting liabilities, representing ownership interest.

Common Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the company's profits or losses.

Retained Earnings

The segment of net profit held back by the business rather than being shared with its proprietors in the form of dividends.

Deferred Revenue

Income that has been received by a company for goods or services not yet delivered or performed, recognized as a liability on the balance sheet.