Use the Information for the Question(s) Below

question 66

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 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) 10.0 million
• D) 1.6 million

---

Definitions:

Contribution Margin

The amount by which the sale of a product or service exceeds its variable costs, contributing to covering fixed costs and generating profit.