Use the Information for the Question(s) Below

question 53

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 hand held 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 wait until after the release of the new video game before they raise the $100 million through the issuance of new shares.The number of new shares that EGI will issue is closest to:

• A) 1.6 million
• B) 5.0 million
• C) 10.0 million
• D) 6.25 million

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Definitions:

Corporate Loans

Loans provided to companies to finance their operations, investments, or expansion projects.

Credit Default Swaps

Financial derivative contracts that allow an investor to swap or offset their credit risk with that of another investor.

Securitization

The process of converting an asset, often a loan or a group of loans, into a marketable security, typically for raising capital.

Liquidity

The ability to quickly convert assets into cash without significant loss in value, crucial for meeting short-term financial obligations.