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The Hewler Corp
The Hewler Corp. is thinking about a project which requires the purchase of $800,000 of fixed assets. The NPV of the project is $80,000. Equity shares will be issued as the sole means of financing the project. What will the new book value per share be after the project is implemented given the following current information on the firm? ( Do not use the $ sign in your answer. If your answer is $85.93, enter 85.93)Number of shares outstanding 200,000
Book value $2,500,000
Market value $3,200,000
Net income $600,000
Earnings per share $3
Expert Solution
Computation of New Book Value per Share:
Existing Market Price = Market Value/Number of Shares Outstanding
= $3,200,000/200,000
= $16
New Shares Outstanding = Existing Shares + (Fixed Asset Cost/Market Price)
= 200,000 + ($800,000/$16)
= 200,000 + 50,000
= 250,000
New Book Value per Share = (Existing Book Value + Fixed Asset)/New Shares
= ($2,500,000+$800,000)/250,000
= $3,300,000/250,000
= $13.20 per share
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