The DR motor car company has 100 shares of stock outstanding. The net earn- ings of the company are $5,000 per year, continuing forever. The firm announces that one year from now the company will have an opportunity to pay $1,000 to begin the con- struction of a new plant. One year after construction begins, the plant will generate addi- tional net earnings equal to $330/year. These additional earnings will continue forever.
Determine:
(a) The net present value of the project.
(b) The new equilibrium price of a share if the firm finances the project by issuing new shares when the construction of the plant begins.
(c) The number of new shares that the firm must issue.